Ethnic Minorities in Private Equity 

The face of European private equity and venture capital is overwhelmingly white. In 2021, the British Venture Capital and Private Equity Association (BVCA) and the charity group Level 20 published a pioneering study entitled Diversity & Inclusion Survey 2021. For the first time, the study examined the ethnic makeup of the PE industry in Europe. 73 firms with over 2,700 employees across the UK and Europe were able to provide self-declared ethnicity data through an anonymous survey run between October 2020 and January 2021. The survey findings helped draw a compelling picture.

Ethnic Minorities in PE:                                                                                                                  

According to the study, only 20% of individuals working in the PE industry identify as Black, Asian or other Ethnic minority backgrounds. Many of the firms surveyed are located in London, the most ethnically diverse region in England and Wales where over 40% of residents identify as Asian, Black, Mixed race or Other ethnic groups (2011 Census). This implies that ethnic minorities are largely underrepresented within the private equity industry.

Moreover, employees identifying as White dominate the pool of high earning investment professionals. According to the BVCA/Level 20 survey, they represent over 60% of the workforce at all levels and 80% of the workforce at the senior level. In contrast, the representation of all other ethnic groups drops as seniority increases. This translates to a lack of diversity of background, experience and thought at the senior level. This is concerning as these are the very people who also act as role models and mentors and should supposedly drive cultural change.

Although people of different ethnicities (non-white) are better represented in non-investment teams, their representation is still low in these teams. Only 25% of senior non-investment professionals identify as ethnic minorities, with Asians being by far the largest non-white ethnic group. This suggests that other ethnic groups, namely Black and mixed ethnicity populations, are very heavily underrepresented.

The study also combined ethnicity with gender data and found that women from ethnically diverse backgrounds are doubly disadvantaged as they represent only 9% of the report’s sample.

The same study highlights that 54% of 69 firms who provided data have white-only investment teams. This suggests that over half of the firms surveyed are failing to recruit individuals from diverse ethnic backgrounds.

Ethnic Minorities in VC:

An ethnicity survey of 223 UK venture capitalists carried out by Diversity VC in 2019 suggests that only 24% of the venture capital workforce is non-white. Again, the majority of the firms surveyed are based in London, the most ethnically diverse region in England and Wales, where over 40% of residents identify as Asian, Black, Mixed race or Other ethnic groups. As a result, when compared with the London average, ethnic minorities are also severely underrepresented in venture capital.

Unconscious bias?

The state of ethnic diversity in private equity and venture capital is alarming. One may wonder whether this current lack of ethnic diversity is due to prejudice. Most of us would never describe ourselves as racist but we all acquire stereotypes throughout our lives, from the people around us, the media, our interactions with others or our personal experiences. Unconscious biases are social stereotypes about certain groups of people that we may form outside our own conscious awareness. These are deep-seated assumptions we make about people who are different than us without even realising it. It is also called implicit bias. It is important that we try to recognise these biases and actively challenge them because bias and modern forms of subtle racism continue to shape our world.

Research from Professor Binna Kandola OBE suggests that Racial Prejudice takes place during CV screening. Binna Kandola is a world-renowned psychologist and a co-founder of Pearn Kandola, a UK based business psychology consultancy which provides diversity & inclusion training. In his research, Professor Kandola found that in two resumes with the same qualifications, the one with a name that “seemed to be of a white person” (such as Emily, Neil or Todd), was about 50% more likely to be offered an in-person interview than those whose name seemed to be of a person from an ethnic minority background (Aisha, Jamal and Hakin). These findings suggest that there is conscious or unconscious bias among employers and recruiters.

While not specific to PE, bias affects every stage of an employee's life cycle and can therefore impact promotion. It is reasonable to believe that bias may play a significant role in shaping the face of the private equity sector, where 80% of the senior investment professionals identify as White. As a result, they may relate more easily to people who are similar to them and favour them, whether it is done consciously or unconsciously. Affinity bias is the tendency to connect with people who look and seem most like themselves. We all have an affinity bias. It would be naïve to suggest that bias and/or racism are not present in the private equity industry today. Indifference to this issue is the precondition for the perpetuation of prejudice. As a result, if bias is shaping the face of today’s private equity industry, ethnic diversity will only be achieved through conscious positive action.

While the PE industry is racing to tackle its gender gap, there are fewer initiatives launched to tackle the striking ethnicity gap. Last year, a group of private equity firms became the first sponsors of the Alternative Investment Programme (AIP), a new initiative to tackle the ethnicity gap in the alternative investment space in Europe. The programme is run by SEO London and aims to help these firms hire more people from ethnic minorities or low socio-economic backgrounds. This will hopefully be the first of many.

The role played by headhunters:

It is worth noting some of the findings shared in the BITC Race at Work Scorecard Report 2021. Namely, despite Black African (67%) and Black Caribbean (71%) people being the most likely to use a recruitment agency, they are the least likely to believe that they are treated fairly. The perception of fair treatment has declined since this was reported in 2018 from 38% to 34%.

These disparities in the perception of ‘recruitment agency’ treatment by ethnic groups have existed since 2015. The recruitment industry needs to tackle this promptly to change these marketplace perceptions. This equally points to the critical importance of raising awareness on the topic of diversity and inclusion within the recruitment industry, which serves the private equity sector.