Perspectives on the State of Diversity and Inclusion in the Private Equity Industry - Part One

Introductory Thoughts

Diversity is a hot topic and it’s no surprise that the private equity industry has been trying to catch up, alongside the rest of the corporate world. Beyond the obvious ESG considerations at stake, institutional investors in private equity – both Limited and General Partners - are carrying the heavy weight of what has become a societal challenge, repeatedly highlighted in recent years. Many recent events, including the rise of the ‘Me-too’ movement since 2017 and the ‘Black Lives Matter’ movement since 2020, have combinedly helped to raise awareness on issues such as gender inequality and institutional racism. At the core of the problem lies the lack of diversity, equality, and inclusion in many areas of contemporary society. For example, widespread gender oppression and gender discrimination still threaten the safety and advancement of many women globally.  In the US, the death of George Floyd in May 2020 produced a seismic shift in cultural awareness of systemic racism and set in motion urgent calls for racial equity, globally.

Even prior to 2020, many inspired leaders had made a public commitment to promote diversity, equity and inclusion and thereby transform their organisations for the better. The trend is still growing and affecting every industry globally. To tackle the striking gender inequality in the ‘board room’, the 30% Club aims to reach at least 30% representation by women on all boards and C-suites globally. The campaign was founded in 2010 by Baroness Helena Morrissey and has since evolved into a global mission with chapters in multiple countries and regions around the world. Their 30% target is a minimum objective. It represents a floor not a ceiling and the 30% Club is ultimately striving for gender balance at senior level.

Similarly, the Hampton-Alexander Review set a target of 33% representation by women on FTSE 350 Boards and in Executive Committee and Direct Reports to be achieved by the end of 2020. The target was set in 2016 and the Review captured over 23,000 leadership roles in 350 of Britain’s largest companies. This initiative made the UK’s voluntary approach to improving women’s representation at the top table, arguably the biggest and most ambitious of any country. Their Women on Boards targets were achieved in aggregate by the FTSE 350 at the end of 2020. The percentage of women serving on FTSE 100 Boards increased from 27.7% in 2017 to 36.2% in 2020 and on FTSE 250 Boards, from 22.8% in 2017 to 33.2% in 2020.

There have been several initiatives to help alleviate the under-representation of women and other under-represented groups in senior roles within the UK. In 2019, the Sutton Trust published a report entitled Elitist Britain. The document identified that, in the UK, women are under-represented across the highest earning professions, making up just 5% of FTSE 350 CEOs, 16% of local government leaders, 24% of senior judges, 26% of permanent secretaries and 35% of top diplomats, at the time of the report.

What about Private Equity?

As of March 2021, 38% of private equity employees in Europe were women. When looking specifically at buyout groups in Europe, 20.6% of people employed were women at the end of 2020, just slightly up from 20.4% at the end of 2019. This is evidencing the many recent initiatives launched to encourage gender diversity within the European private equity industry. However, female representation among senior roles remains low. Only 15% of senior roles at European private equity firms were occupied by women in 2019. Various reasons explain these low numbers at senior level. We will aim at highlighting a few of these in our D&I series.

Similarly, ethnic minorities are under-represented within the Private Equity sector. While there is less data available to dissect this issue, we will endeavour to highlight and report some telling figures.

Fortunately, there seems to be a positive shift as many private equity firms are working towards improving these figures. Beyond a hearted inspiration to ‘do right’, Private Equity investors are reacting to a large body of evidence that shows why and how diverse teams are better at making high-quality decisions, which in turn will result in better returns. Additionally, there are increasing external pressures that push the PE industry to address the lack of diversity in the sector. Indeed, many Limited Partners – the pension funds, sovereign wealth funds, endowments and other public bodies that invest in private equity - have started to consider diversity levels before committing capital. As we are seeing fund managers’ ability to raise capital being directly impacted by the state of their diversity commitment and results, it has become essential that every private equity firm takes a close look at what they can do to build a satisfactory D&I framework and thereby improve diversity and inclusion within their workforce. This will in turn put these firms in the best position to ensure the retention and progression of specific populations of employees, which have been under-represented historically.

In this context, Walker Hamill is committed to supporting our Private Equity clients’ efforts to attract the most talented and diverse professionals. We have identified and summarised the best practices which have proven successful in attracting and retaining under-represented populations, with a focus on investment roles i.e. our core area of activity and the area where under-representation tends to be even more extreme. As a firm, we are dedicated to actively supporting, advising and promoting diversity in hiring processes. Our D&I series will outline several successful methods that private equity firms can use to help them to achieve equal opportunity, true equity and subsequently, employee retention. As a result, these articles will aim at providing an invaluable checklist to our clients and the wider private equity industry. This checklist will serve as a useful guide to implementing the necessary steps needed to reach satisfactory D&I goals.

Moreover, our D&I series will highlight the challenges faced by private equity firms when working towards achieving diversity & inclusion within their ranks. Ultimately, we hope that this content will help our clients to differentiate themselves in the market, hereby helping them to successfully attract and retain the most able and diverse talents, in what has evolved to become a candidate’s market. 

We hope that you enjoy our first D&I series: Perspectives on the State of Diversity and Inclusion in the Private Equity Industry. We look forward to discussing any of these points further with you.

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