Firms must reconsider and rebuild their hiring practices. Many firms already do this, including by requiring diverse candidates be interviewed for every open position, setting targets, such as hiring 40% female associates in a given year, and expanding interviewing channels to include, for instance, HBCUs.
Recruiting is complicated by the current lack of diversity in the industry, which means that every firm trying to build diversity in its middle and senior levels is competing for the same pool of talent. One way around this is to broaden the qualifications to include diverse candidates from fields other than finance. There is some evidence that this is happening; executives at firms we spoke with said they are increasingly willing to hire at more senior levels from different channels than other PE firms and investment banks — for instance, consultants and insurance companies.
PE has historically struggled to retain diverse talent, and the sparse data that exists on the topic suggests little improvement has been made in recent years.
One study that looked at data from 1995 to 2000 found that the attrition rate of women in private markets was nearly double that of men. Sixty-four percent of the women identified in 1995 were no longer in the industry in 2000 vs. 33% of the men.31 In a more recent Australia-specific survey in 2020, the Australian Investment Council reported similar results, and additionally found that the highest attrition rates were among junior women.32 In another 2020 survey, Investec found that 21% of women are dissatisfied with their careers in PE, compared with 8% of men.33
Without solid retention rates, hiring more diverse employees is neither an impactful nor sustainable approach. For instance, a firm that sets a target of having 40% female staff overall and begins hiring 60% female employees per year to “catch up” will never reach its 40% target if it retains female staff at two-thirds of the rate of its male staff. To calculate how long it will take to reach your diversity targets, view the Diversity Integration Model interactive tool created by the Kenan Institute of Private Enterprise, a partner of the Kenan-Flagler Busines School at the University of North Carolina.