Perspectives on the State of Diversity and Inclusion in the Private Equity Industry - Part Two
Women in Private Equity: some key facts and figures
How many women work in PE?
According to the BVCA Diversity and Inclusion report published in March 2021, women account for 38% of the private equity and venture capital workforce in Europe. This is an increase from previous years since women represented 29% of the private equity workforce in 2018 and 30% of the VC workforce in 2019. While it is an improvement, this is still a long way from gender parity.
What roles do women occupy in PE?
According to Prequin, as of February 2019, women were primarily employed in investor relations (53%), finance teams (39%) and support or administrative roles. However, at senior levels, those proportions fell to 34% of investor relations staff and 25% of finance staff. This implies that women are primarily recruited to work in non-money generating roles and at the junior level. As a result, women tend to occupy less financially rewarding positions in comparison to their male counterparts.
The aforementioned BVCA Diversity and Inclusion report identified that women accounted for only 10% of senior investment roles in the UK and in Europe as of March 2021. Hence, women are missing out on the higher earning careers within the private equity industry.
What is the state of the PE candidate pool?
For context, investment banking and management consulting are traditional candidate pools for entry-level or associate-level private equity recruiting. In fact, when looking at Walker Hamill’s private equity clients recruiting for an associate level position in September 2022, 92% would consider investment banking profiles. This makes investment banking the primary candidate pool for private equity investment roles.
While, in recent years, investment banks have made concerted efforts to recruit a more diverse pool of candidates, most new entrants into front office investment banking roles still have degrees in finance, inter-related fields and STEM subjects (science, technology, engineering, and mathematics). This is a global trend. According to eFinancialCareers, 67% of new undergraduate hires had majored in finance, economics, accounting, or business administration and management in 2018. This figure rose to 78% when adding mathematics, engineering and computer science.
However, according to the Women in Science and Engineering (Wise) Campaign’s analysis of higher education statistics, women only accounted for 26% of all people graduating from UK universities with a core STEM degree in 2019. Similarly, not enough women seem to be taking up economics. In 2018, women only represented 32% of economics undergraduates in the UK. As a result, the under-representation of women in the investment banking candidate pool can be explained by the restricted pool of incoming female talents.
The under-representation of women in the investment banking candidate pool can also be explained by the higher drop-out rate among women. Although women make up 45% – nearly half – of the broader UK financial services workforce, there is a higher level of attrition among women. They are more likely than men to leave banking roles at junior and mid senior level for various reasons, including starting a family, wanting better work/life balance, having experienced discrimination in the workplace or being discouraged by the lack of successful female role models in their organisation or industry.
Insight into the venture capital deal ecosystem
In 2019, NatWest Group CEO Alison Rose’s review of female entrepreneurship - The Rose Review – identified perceived bias within the UK venture finance community as a concern. The review highlighted that:
- Just 13% of senior people on UK investment teams were women
- Almost half (48%) of investment teams had no women at all
According to the UK Venture Capital and Female Founders report also published in 2019:
- Only 1% of UK venture funding goes to all-female founders
- Only 4% of venture deals relate to all-female founder teams
While the trajectory is positive, women are also under-represented in the venture capital industry, especially at the top.
Challenges impacting women in PE
The Good Finance Framework is an initiative by Women in Banking and Finance. The objective of this study is to create a framework comprised of actions that a company can take to ensure that they retain and develop their most talented employees in all their diversity. The study highlighted common challenges that women experience when working in professional and financial services. Many of these findings can be applied to women working within the private equity sector. We have listed a few examples below:
- The idea that women need to sink or swim, but men have many more opportunities to survive in financial services
- The feeling of being held to higher performance standards compared to their male counterparts
- Having their high performance more regularly discounted as compared to men
- Being treated differently when making mistakes
- Being either labelled ‘competent or incompetent in their ability,’ while observing a much bigger distribution of perceived ability among the male colleagues
- Not being part of the ‘boys club’ where other members, men, are powerful gatekeepers to opportunities for emerging talent
- Emerging women being less likely to get opportunities under male gatekeepers, and often having their progression blocked
- Observing a lack of authenticity among managers who may fake empathy when managing women, recognising that the trait is now very valuable
Notable progress in the PE sector
Gender analysis carried out by the BVCA and Level 20 revealed positive progress in Europe, as of March 2021. Within private equity, the number of women working in investment roles has improved across senior (10%), mid (20%) and junior levels (33%), in small, mid and mega sized funds (based on AUM). Progress is also evident in the number of senior women working in non-investment roles (30%). Significantly, all male investment teams have declined to 12% down from 28% in 2018. This is a noteworthy shift.
Still, despite recent progress to correct the gender imbalance within the private equity industry, there is still much work to be done. Private equity is built on legacy networks. Because of carry structures, senior professionals are typically reluctant to leave. As a result, there is little movement at the top, and junior female professionals have limited opportunity to be promoted without a strong diversity & inclusion agenda in place to drive cultural and structural changes within their firms.
Limited Partners also play a key role in driving gender diversity in the private equity sector. Many LPs have indeed pushed the issue of diversity at the centre of the agenda, namely during fundraising due diligence. Similarly, key initiatives such as Level 20, the 30% Club, Women in Finance, and the Hampton Alexander report are all contributing towards improving the representation of women in the private equity world.