20 minute read 6 Dec 2021

Can PE win deals if it doesn’t deal with DEI?

By Sandra Krusch

EY Europe West Private Equity Leader

Passionate about people; team player, inclusive. PE client-serving. Leading by enabling others. Enjoys skiing; travel enthusiast.

20 minute read 6 Dec 2021
Related topics Private equity

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DEI initiatives are proliferating in private equity as the industry begins to address how its culture has historically impeded diversity.

In brief
  • PE’s ability to meet stakeholder demands, access capital, win deals and compete for talent is increasingly contingent on progress against DEI metrics.
  • We identified 10 characteristics of PE culture that can impede DEI, degrade performance and detract from the experience diverse employees are having in PE.
  • PE has two levers to pull — recruitment and retention — the latter of which is the main focus of this report.

In the wake of recent social justice movements, the private equity (PE) industry has begun to bring the same attention and rigor to addressing diversity, equity, and inclusion (DEI) as it does to doing deals. Examples are everywhere, from firms partnering with historically Black colleges and universities (HBCUs) to setting and meeting targets for diverse hires to tying compensation to DEI targets.

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In the EY 2021 Global Private Equity Survey, respondents indicated that talent management was the second strategic priority (after asset growth) across firms of all sizes. Top talent management priorities included increasing gender and ethnic minority representation across the front and back offices. Over 70% of the PE managers surveyed said they are launching either documented or informal DEI initiatives.

But significant progress has yet to show up in industry-wide statistics. The reasons are many, but in short: DEI is a massive undertaking that requires fundamentally rethinking the entire employee lifecycle through a diversity lens — from recruiting to engagement to departure and beyond.

This report strives to help PE leaders recognize DEI as an existential imperative and provide the data and tools needed to inspire introspection, assessment and action. The EY organization has collaborated with the Institute for Private Capital, a partner of the Kenan-Flagler Business School at the University of North Carolina, and the analysis incorporates data from research conducted by Level 20, a not-for-profit organization dedicated to improving gender diversity in the European PE industry.

DEI is a crucial and dynamic topic that continues to evolve. Accordingly, we plan to periodically update this report to capture insights learned from the progress being made across the PE industry. 

How long will it take to reach my diversity goals?

The Institute for Private Capital’s Diversity Integration Model calculates how long it will take to achieve diversity targets.


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Chapter 1

The current state of DEI in private equity

The PE industry is putting some real muscle behind DEI.

The PE industry is putting some real muscle behind DEI. The Institutional Limited Partners Association has launched its Diversity in Action initiative, with more than 200 organizations signing on. Level 20, a not-for-profit organization that promotes gender diversity in European PE, has more than 80 firms as sponsors. Efforts to measure and make diversity transparent are taking off, with consulting firm Equality Group launching its first Inclusive Top 20 PE and VC Index and planning annual updates showing how firms are doing.

A growing list of individual firms have recently made progress on DEI initiatives, including:

While initiatives are beginning to proliferate, the scope of the challenge remains large. The world of finance is infamous for its challenges with diversity, and the problem is particularly acute in PE and other alternative asset classes.

  • In finance broadly, women account for an equal proportion of the workforce in entry-level positions.9 In PE, that figure is one-third.8
  • In finance broadly, 20% of executive committee roles are filled by women, and only 6% of CEOs are female.10 In PE, women fill 20% of mid-level roles and 10% of senior roles.11
  • Similar trends are seen for ethnic minorities. At banks, 12% of employees are Black and 11% are Latino, approximating these groups’ representation in the broader workforce. These figures decline to 4% or less at senior executive levels.12 In PE, the figures are lower: 3% Black employees across all roles at firms, with that figure declining even more at more senior levels.13, 14
  • The numbers aren’t good at portfolio companies, either. A recent study from the Board Diversity Action Alliance asserts that Black and Latino directors each held about 1% of board seats created at companies backed by the top 18 PE and venture capital firms, with women holding 10%.15

Recent efforts have yet to significantly budge the industry’s numbers — and, therefore, its reputation. Level 20’s latest study with the British Venture Capital Association shows 10% of senior investment roles are held by women, compared with 6% in 2018, for example.16

Businessman using laptop in cafe
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Chapter 2

The rationale for implementing DEI

PE stakeholders agree that DEI is the best and only path forward.

It goes without saying that implementing DEI is the right thing to do. An increasing focus on social justice — exemplified by movements like Black Lives Matter — has shined a harsh spotlight on systemic inequalities and prompted action based on an incontrovertible moral case. But there are multiple other reasons to consider DEI as well.

  • The research

    There is an increasing body of research about the relationship between DEI and operating performance.

    • The Financial Review documented a positive relationship between corporate board diversity and firm value for publicly traded companies in the US.18 (David Carter, Betty Simkins, and Gary Simpson, 2003) However, recent research by Jeremiah Green and John R.M. Hand challenges the relationship between performance and diversity, suggesting there is not a statistically reliable relationship, at least for US companies in the S&P 500.19 (Jeremiah Green and John Hand, 2021)
    • In the private markets specifically, improved gender diversity improved venture capital deals and fund performance.20 (Paul Gompers and Sophie Q. Wang , 2017) More in-depth research found that sociodemographic diversity among lead partner teams of PE funds positively affects buy-out performance, but that other types of diversity related to professional experience and educational background can negatively affect performance.21 (Benjamin Hammer and Silke Pettkus, 2021)
    • Insincere attempts at creating a more diverse workforce can backfire by creating a toxic culture of tokenism.22 Other studies show that talented and experienced professionals flee organizations in which they perceive they are tokenized. Organizations can compound problems if they try to solve diversity challenges by hiring people who are less experienced, a move that can escalate internal cultural challenges and affect financial performance.
    • Investors often take note and may penalize firms by ascribing lower valuations. For example, research examining diversity that is mandated by regulators shows that when boards are forced to diversify by adding less qualified directors, it results in lower firm value. In the PE industry specifically, there is evidence that LPs see through attempts by general partners (GPs) to “window dress” return performance so it’s not unreasonable to expect the same is true for evaluations of DEI success.23 (Gregory Brown, Oleg Gredil and Steven Kaplan, 2019)
    • The Carlyle Group has in-house data that it shared in 2020 showing that its companies with diverse boards grew five times faster than those with non-diverse boards.24 (Graham Bippart, 2020) We expect that over time, the preponderance of evidence will come to support diversity’s positive impact on performance.
  • The stakeholders

    Regardless of where the research lands, PE firms have multiple constituencies that favor DEI, meaning there’s an argument to be made in support of better returns in the form of happier, more productive employees and better access to both capital and deals.

    • Regulators worldwide are looking more seriously at requiring diversity disclosures and other steps to boost DEI in the industries they oversee. British regulators have authored a working paper outlining their role in DEI, including a pilot data survey.25 (BoE, FCA, 2021) The Securities and Exchange Commission and other US regulators have also been discussing what steps to take, including requiring diversity data disclosures, with an SEC commissioner noting, “We should reflect on how the SEC could more systematically consider gender, racial, and other representation disparities in its policymaking.”26 (Allison Herren Lee, 2020)
    • Employees, particularly among younger generations, prefer to work in diverse environments. Nearly 80% of workers in a 2021 CNBC/SurveyMonkey Workforce Survey say that they want to work for a company that values DEI.27 (CNBC, 2021)
    • LPs are rapidly adopting DEI criteria. More than 200 organizations — including Warburg Pincus, Vista Equity Partners, KKR, Advent International and Apax — have signed on to the Institutional Limited Partners Association’s (ILPA) Diversity in Action initiative since it launched in December 2020. This initiative requires participating organizations to commit to certain actions, including having a DEI statement, tracking hiring and promotions by gender and race or ethnicity, and offering up DEI demographics data while raising funds. A related ILPA survey found that 87% of LPs either have or are developing a DEI policy or statement; and 40% are considering incorporating DEI metrics into their diligence processes.28 (Institutional Limited Partners Association, 2021) We view that percentage as likely to grow even higher with time because the direction of travel is clear — PE firms without diverse workforces risk losing allocations from highly coveted institutional investors.
    • CEOs and founders are increasingly seeking investors that share their values. For example, in October 2021, Blackstone took a majority share in the iconic women’s shapewear brand Spanx, whose female founder worked with all-female deal and legal teams, and Blackstone pledged to appoint an all-women board.29 With a record US$1.3b in dry powder and fierce competition for compelling assets, PE firms are looking for an edge in the negotiations with entrepreneurs and family business owners. As diverse and allied CEOs increasingly take seats at the deal table, they actively seek partners who can do more than provide capital and operational expertise; they want partners whose values align with or can enhance their own. The competitive edge PE firms so desperately seek will increasingly come from an authentic and compelling story around shared values, including a shared commitment to diversity. 
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Chapter 3

A long-term effort with long-term value

DEI is an ongoing journey, and firms that haven’t embarked risk falling well behind.

DEI is a continuous process. At many firms, initiatives are in the early stages, and still need codifying and systematizing. Many others, especially those in the middle market, have yet to start. A recent survey from PineBridge Investments found that more than a third of firms have not yet taken formal action to support equity and advancement of women and other employees from traditionally underrepresented groups.30

Indeed, for these firms that have yet to take formal action, a number of factors could be at play, such as:

  • Managers may not be aware of the ways in which a lack of diversity impacts their teams and investment decisions from day to day.
  • Firms may have chosen to focus their efforts on their portfolio, rather than themselves.Middle-market firms in particular may lack the resources to dedicate to DEI initiatives.
  • Firms may have chosen to focus their efforts on their portfolio, rather than themselves.

Even for those firms that have begun their journey, progress will take time. Many firms only recently began expanding their hiring pipelines to include more diverse groups. It takes time to hire, train and promote, and industry executives have mentioned timelines of three to five years to begin seeing results. And, as discussed later in the report, retention can be difficult if diverse employees don’t feel included in firm culture, lengthening the timelines to achieve diversity targets.

Considering the extended time frame for DEI initiatives to bear fruit, firms that haven’t started are already well behind. Inaction is a kind of action, and further delay bears the risk of making firms seem inauthentic in their efforts, hindering their ability to raise capital and do deals, tarnishing their legacies and ultimately endangering their survival.

Confident businesswoman sitting at office desk
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Chapter 4

The two available levers

At the most fundamental level, firms have two main levers available to pull: recruitment and retention.


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.

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Senior businessman in suit looking out of window
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Chapter 5

How PE culture can impede DEI

We have identified 10 characteristics of PE culture that can create de facto barriers to DEI.

PE culture is distinct. On the one hand, it has fostered enormous growth and financial success. On the other hand, it hasn’t sufficiently valued high-performing individuals who may not fit the traditional success prototype that is deeply embedded in PE firm culture and operational processes. Below are 10 characteristics of PE culture that can create de facto barriers to DEI.

Click each characteristic to learn more.

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Chapter 6

Assessing the employee life cycle through a DEI lens

Before you act, take some time to self-assess at both a personal and organizational level. We’ll help you ask the right questions.

A PE firm’s cultural mores are deeply and unconsciously intertwined and internalized in behavioral norms that, until very recently, have not been scrutinized through a DEI lens. While PE is a relatively young industry, it nonetheless faces the daunting task of excavating its shortcomings and incorporating DEI into a culture that was historically designed to be exclusive.

Before you act, take some time to self-assess. The question set below is designed to help firms explore the experiences their diverse talent is currently having and illuminate the deficiencies that can disproportionately impact diverse talent so they can take intentional, meaningful steps to improve their experiences.

Click each card to see the related question set.

  • Show article references#Hide article references

    1. Elisanga Mendonca, "Walking the Talk: Meet the Most Inclusive PE and VC Firms," Private Equity News, March 8, 2021.
    2. William Louch, "Carlyle Group Steps Up Bid to Improve Diversity," The Wall Street Journal, July 31, 2020.
    3. Adam Lewis, "PE firms join forces with HBCUs as industry grapples with lack of diversity," Pitchbook, June 15, 2021.
    4. Sarah Pringle, "TPG, Advent Take Big Steps to Open the Hiring Funnel in Private Equity," Buyouts, February 2, 2021.
    5. Diversity and Inclusion, Partners Group, 2021
    6. NACD and Vista Equity Partners Launch Pipeline Program to Increase Pool of Diverse Talent for Audit Committees, NACD 2021
    7. Elisanga Mendonca, "Walking the Talk: Meet the Most Inclusive PE and VC Firms," Private Equity News, March 8, 2021.
    8. Adam Lewis, "PE firms join forces with HBCUs as industry grapples with lack of diversity," Pitchbook, June 15, 2021.
    9. Anders Keitz, "Women on Wall Street See Fewer Opportunities to Advance," The Street, October 14, 2017.
    10. Diversity and Inclusion Survey 2021, BVCA and Level 20, 2021.
    11. Women in Financial Services 2020, Oliver Wyman, 2019.
    12. Diversity and Inclusion Survey 2021, BVCA and Level 20, 2021.
    13. Diversity and Inclusion: Holding America's Large Banks Accountable, US House of Representatives Committee on Financial Services, 2020.
    14. Diversity and Inclusion Survey 2021, BVCA and Level 20, 2021.
    15. Max Abelson and Sarah McBride, "Private Equity-Backed Firms Shut Out Black Directors, Data Show," Bloomberg, September 7, 2021.
    16. Diversity and Inclusion Survey 2021, BVCA and Level 20, 2021.
    17. Vivian Hunt, Dennis Layton and Sara Prince, Diversity Matters McKinsey & Company working paper, 2015.
    18. David Carter, Betty Simkins and Gary Simpson, "Corporate governance, board diversity, and firm value," Financial Review, 38, 33-53, 2003.
    19. Jeremiah Green and John Hand, Diversity matters/delivers/wins revisited in S&P 500® firms, 2021.
    20. Paul Gompers and Sophie Q. Wang, And the children shall lead: Gender diversity and performance in venture capital, 2017.
    21. Benjamin Hammer and Silke Pettkus, "The More the Merrier? Diversity and Private Equity Performance," British Journal of Management. 2021.
    22. Eden B. King, Michelle R. Hebl, Jennifer M. George, Sharon F. Matusik, 2009, Understanding Tokenism: Antecedents and Consequences of a Psychological Climate of Gender Inequity, Journal of Management 36(2), 482-510. Leonard, Jonathan, and David Levine, 2010, The Effect of Diversity on Turnover, A Large Case Study, Industrial and Labor Relations Review 59(4), 547-572. Gündemir, S., Dovidio, J. F., Homan, A. C., & De Dreu, C. K. W. (2017). The Impact of Organizational Diversity Policies on Minority Employees’ Leadership Self-Perceptions and Goals. Journal of Leadership & Organizational Studies, 24(2), 172–188. Milliken, F. J. and L. L. Martins, 1996, Searching for common threads: Understanding the multiple effects of diversity in organizational groups, Academy of Management Review, 21, 402–433.
    23. Gregory Brown, Oleg Gredil and Steven Kaplan, "Do Private Equity Funds Manipulate Reported Returns?" Journal of Financial Economics, 132(2), 267-297, 2019.
    24. Graham Bippart, "How Three Titans of PE do Diversity, Equity and Inclusion, Secondaries Investor, December 14, 2020.
    25. Diversity and inclusion in the financial sector – working together to drive change, BoE and FCA,2021.
    26. Allison Herren Lee, "Diversity Matters, Disclosure Works, and the SEC Can Do More," remarks at the Council of Institutional Investors Fall 2020 Conference, 2020.
    27. CNBC and SurveyMonkey Release Latest Workforce Happiness Survey, CNBC, 2021.
    28. Diversity in Action: Sharing Our Progress, Institutional Limited Partners Association, 2021.
    29. Blackstone Buys Majority Stake in SPANX, Inc.," Blackstone Press Release, 2021.
    30. PineBridge Private Funds Group 2021 General Partners ESG Survey, PineBridge Investments, 2021.
    31. Nori Gerardo Lietz, Cloistered in the Pink Ghetto, (2011).
    32. Women in the Australian Private Capital Industry: The 2020 Scorecard, Australian Investment Council, 2020.
    33. Madhvi Mavadiya, "No Women Want Their Own Private Equity Firm Because Of The Gender Pay Gap," Forbes, June 11, 2020.
    34. On the Clock: Advancing Diversity, Equity and Inclusion in the Asset Management Industry, NICSA, 2021.
    35. Diversity in Action: Sharing Our Progress, Institutional Limited Partners Association, 2021.
    36. Reed Alexander, "Carlyle is tying employee bonuses and CEO comp to successfully meeting goals around diversity, equity, and inclusion at the PE giant," Business Insider, May 11, 2021.
    37. Reaping the Rewards of Retention, YSC Consulting and Level 20, 2021.


With employees, LPs, management teams of potential portfolio companies and regulators all increasingly focused on ESG measures including DEI, PE firms that don’t prioritize DEI risk losing the best people and the best deals, not to mention capital from LPs. How firms navigate this in the next few years will affect their brand, their reputation and, ultimately, their very survival.

About this article

By Sandra Krusch

EY Europe West Private Equity Leader

Passionate about people; team player, inclusive. PE client-serving. Leading by enabling others. Enjoys skiing; travel enthusiast.

Related topics Private equity