When it comes to gender diversity in the workplace the private equity industry hasn’t always been at the vanguard of reform. The good news is that things are changing.
According to The state of diversity in global private markets: 2023, a landmark annual review of diversity in private markets compiled by McKinsey, just under half of entry level roles in private equity were held by women at the end of 2022.
A separate report from the British Private Equity & Venture Capital Association (BVCA) and Level 20 (a not-for-profit organization campaigning for gender diversity in private equity) found that women held 11 percent of senior investment roles in private equity in UK firms and their European offices – up from 10 percent in 2021 and just six percent in 2018.
In an industry where there has been limited female representation historically, these findings are signs of encouraging advancement to a more gender-balanced private equity work force.
A commercial priority
Improvements to the gender mix in private markets, as well as the wider corporate world, reflect an acknowledgment by businesses of the ethical argument that workplaces should reflect the demographics of wider society. Alongside the ethical case for gender diversity in business settings, however, there is also a growing bank of evidence showing that gender balance isn’t only a moral priority but commercial one.
Zenger Folkman research referenced in Harvard Business Review, for example, found that women rated better on key leadership capabilities than men. A separate study by S&P Global Market Intelligence showed that companies with female chief financial officers outperformed their sector averages, and that businesses with female chief executives generated superior share price performance to peers.
Academics have also found that organizations with female leaders in the C-suite are more likely to prioritize investment in research and development and are more careful when taking risk. There are several other similar studies highlighting the commercial benefits women bring to corporate leadership.
Diverse teams drive private markets performance
The evidence pointing to superior corporate performance when senior management is more diverse is mirrored in the private markets industry. Research led by HEC professor Oliver Gottschalg, utilizing a data set of close to 2,500 deals executed by 51 managers over 20 years, found that buyout teams with at least one female member outperformed all-male teams on IRR and total value to paid in (TVPI) metrics.
Investment committees with at least one female representative, meanwhile, were also shown to deliver better outcomes than male-only committees, with IRRs higher by an average of 12 percent and cash returns better by 52 cents per dollar invested for mixed teams. Gender balanced private equity teams were also shown to reduce risk, bringing down average capital loss ratios for funds by 8 percent.
“Our study is the first to prove empirically that performance of gender-balanced investment teams correlates with higher returns in private equity,” Gottschalg said in an interview on his findings.
Researchers put forward a variety of explanations for the findings of outperformance by gender-balanced teams, including a broader range of insight and perspective when assessing investment targets, improved decision-making and planning and a more balanced approach to risk.
Whatever the explanations for outperformance may be, it is becoming increasingly difficult to ignore headline research findings highlighting the added commercial value that diverse teams offer.
Untapped potential
But while private markets have made progress when it comes to opening up opportunity to female professionals, it is surprising that has not been faster when considering the growing body of evidence that teams with women leaders deliver outperformance.
Senior leadership in private equity leadership and investment teams is still male-dominated. McKinsey’s research, for example, found that while there was balanced female representation at entry level in private equity, at c-suite level women still only held 17 percent of senior roles. McKinsey models suggest that at the current rate of change it could take more than six decades before the industry achieves parity in investing roles at managing director level.
Almost 10 years on from its launch Level 20, meanwhile, is still only halfway towards its objective for women to hold at least 20 percent of senior positions in private equity.
It is important to note that it is only within the last ten years that private equity has recognized the value that recruiting more female professionals into their organizations can bring. Building up talent pools and attracting more women into the industry, however, is a long-term project. It takes time to develop candidates with the training and experience to take on deal making and leadership roles in what is an apprenticeship industry.
Level 20 and programs such as the 10,000 Interns Foundation are helping to address these bottlenecks, but with women still underrepresented in business schools, coupled with complexities around retaining women who have started families in the industry, there are long-term, secular challenges that continue to face the private markets industry when it comes to increasing female representation.
For private markets managers and service providers that have the conviction to tackle these obstacles, however, finding and promoting female talent presents a compelling commercial and strategic opportunity. For Alter Domus the value of gender balance in leadership is almost “old news”, and the firm and its clients have been benefitting from women in senior managerial positions for years, across all markets.
Sandra Legrand, for example, sits on the Alter Domus Group Executive Board and is Regional Executive for Europe and Asia Pacific, overseeing operations in 18 countries, including the Group’s headquarters in Luxembourg.
Under Legrand’s leadership, division revenues have grown by 123 percent, with assets under administration expanding to more than US$740bn, to rank Alter Domus as the number one fund administrator in Europe by funds closed.
Jessica Mead, Group Executive Board member and Regional Executive for North America, has delivered similar performance impact.
Operating out of Chicago in the US, Mead has overseen a transformative period of growth for Alter Domus, increasing headcount by more than 57 percent and growing assets under administration in North America to more than US$837 billion.
At operational level, meanwhile, Chief Human Resources Officer and Group Executive Board member Joanne Ferris has played a crucial role in supporting Alter Domus’ organic and inorganic growth.
Ferris has overseen the onboarding of more than 450 employees via M&A and other strategic initiatives, with retention rates for employees joining following M&A running at between 85 percent and 90 percent. Ferris has also managed 112 percent growth in global headcount to support client demand, as well as making provision for 269,000 hours of staff training and development.
As demonstrated through the leadership of Legrand, Mead and Ferris, gender balance and commercial imperatives are not mutually exclusive, but mutually reinforcing. Leadership means business and there is no such thing as ‘business’ without female leadership.
