Every year, almost like clockwork, a study is released, or a media outlet produces a story about how few women there are in private equity (PE). Then the industry sincerely discusses the need to do better. Then time passes. Then another study comes out, showing little to no progress. Tick tock.
Gender inequality in private equity
Prequin’s latest study, from October 2017, made me feel like I was stuck in a 1980s time warp. In private equity, women make up only 17.9% of all employees. And that includes marketing and investor relations functions. Look at investment positions, and the percentage of women falls to 14%. Narrow it down to senior employees, and it’s even lower, at 9% versus 24% for junior employees. For context, in the broader realm of finance – which doesn’t have a reputation for diversity itself – 25% of senior employees in 2016 were female, according to the Financial Times.
It’s about time the PE industry addressed diversity issues more seriously, and the start of 2018 offers a golden opportunity. After a divisive 2017, the World Economic Forum, with an all-female list of co-chairs that any PE firm would be happy to hire, made “Creating a Shared Future in a Fractured World” the theme of its 2018 meeting. To the many PE deal-makers who attended the annual meeting, the challenge: make a resolution that in 2018, it’s time to fully include women in your firm’s future. It’s time for “Women. Fast forward.”
Recognizing the problem
We know in great detail what the problem is. Due to the industry’s origins – born out of male-dominated 1980’s Wall Street – it inherited a distinct culture carrying many conscious and unconscious biases, which have resulted in a lack of diversity in the present PE industry.
This history works against efforts to drive change now, even though studies show that more diverse firms do better. Indeed, companies with at least 30% female leaders can add as much as 6% to their net margins. Inherited unconscious bias impacts recruitment in the industry, and the inertia of corporate culture creates an environment that fails to support women.
Existing efforts to promote gender equality
The industry has been trying for some time to address this problem. Many of the biggest firms now have heads of diversity and inclusion and more family-friendly programs (including KKR’s offer to fly children and caregivers on business trips). And Blackstone hosted an inaugural Diverse Leaders Program in 2016. I’d argue there is more to be done.
There’s still a long way to go
That’s all laudable. But such efforts can be sporadic and short-term, and the money that funds them is often the first to go in an economic downturn.
To tackle such a complex problem, the solution must be equally multifaceted, systematic and long-term; consisting of multiple strategies:
1. Address the culture
Suzanne Passalacqua, co-founder and Managing Director at 5Lights LLC, put it well when she wrote for PE HUB, “There are two issues to solve: accepting flexibility in work schedules; and welcoming diversity in a range of approaches, ways of listening, assimilating and thinking.”
Flexibility in work (and travel) schedules is one of the easier places to start, and will help retain not just women, but anyone trying to balance work with personal life. Welcoming diversity in a range of approaches is another matter, entailing a fundamental shift in how executives think and dovetailing with unconscious bias.
Passalacqua’s advice is not to mistake “kindness and humility for weakness.” I like to think about it in another way: executives need to be more open and honest with their staff about what is wrong and what needs changing.