Diverse representation is still relatively low compared to the broader asset management industry, and even lower when compared to other industries, according to the Robeco Private Equity ESG report 2019.
“Being multi-dimensional by nature, diversity does not have a single definition,” the report says in the introduction to a chapter in the report entitled ‘Diversity and inclusion in private equity’.
“It might encompass readily detectable attributes, such as gender, race, ethnicity, etc., underlying attributes that are detectable only after getting to know an individual (such as personality, personal style or values) or attributes related to both of these categories, such as education or occupation.”
However, one key issue that can be analyzed fairly simply is the gender imbalance at the top of the industry, as much more reliable data and media coverage is available for this than for other forms of diversity. Research by the alternative assets data provider Preqin and the accounting firm KPMG shows that:
“Various reasons have been put forward to explain the low female representation,” the Robeco ESG report says. “The gender imbalance is rooted in the perception and the image of the industry, the recruitment process, career advancement opportunities, the work-life balance and the workplace culture in private equity firms. The gap starts with the number of women who are recruited for entry-level positions in private equity, and then widens during career advancement.”
The bias towards requiring prior experience in banking or consultancy – even for entry-level positions – is one factor hampering recruitment, the Robeco ESG report suggests. Another is the perception that the private equity world has a less conducive work/life balance, which puts off many female candidates. A lack of provision of maternity leave and inflexible working practices further prevent women from climbing up career ladders, the report says.
The industry therefore needs to raise its game, starting with a greater awareness, the research referenced in the Robeco report suggests. “Both general and limited partners can play a role and take action to help remove the barriers that keep the gender imbalance in private equity in place,” it says. “To start with, some of the barriers – such as those related to closed networks, unconscious biases, or lack of diversity commitments – call for joint efforts from multiple stakeholders.
Citing recommendations from within the industry for how to address the gender imbalance, private equity firms are advised to:
Investors who commit funds to private equity firms – known as limited partners – can also play a role, the report says. “Limited partners can advocate diversity and push the agenda by asking questions about what private equity firms are doing to increase diversity in their investment teams in the due diligence process and in the advisory board meetings,” it says.
And the signs are encouraging, as a KPMG survey on women in alternative investments showed that 75% of investors reported plans to challenge investment firms on their gender diversity in the coming year, up from 60% in 2016. Some 42% said they would require firms that manage money for them to improve diversity, up from 11% in 2016.
Robeco’s own engagement program with its private equity partners is raising the issue of diversity this year. An analysis of responses to the 2019 ESG survey showed that the majority of general partners (71%) have some diversity-related activities or initiatives in their own firms, or in their portfolio companies.
However, just over one fifth of the managers have a diversity policy, principles or standards in place. This could be in the form of a separate policy document, or included in the firm’s code of conduct. About one third of the managers engage with their portfolio companies on diversity in some way. For example, 20% of the responding managers focus on building more diverse boards in their companies.
Meanwhile, there are various initiatives to improve diversity, such as Level 20, a not-for-profit organization set up in 2015 to inspire more women to join and to succeed in the private equity industry. Other groups include the Private Equity Women’s Initiative and the Association of Women in Alternative Investing, among others.
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