A seat at the table: Inclusion has become a crucial factor in PE talent recruiting

Hiring has been difficult for PE firms, but trying to find more DE&I candidates for various roles means searches are taking even longer.

Many PE managers have cast wider nets in recent years to find talent where they hadn’t looked before, as the overall labor market remains tight, even as the phenomenon now broadly known as the Great Resignation persists. The approach has often gone hand-in-hand with meeting diversity goals, now a major priority for an increasing number of firms.

But it hasn’t been as easy as it sounds. The search timelines for effectively all positions have extended considerably, even as firms look farther and wider for talent.

A large portion of PE firms prioritize diversity among investment professionals. In EY’s 2023 Global Private Equity Survey, around half of all managers surveyed said that, other than retaining talent, diversity was a top priority. And 41 percent said that, as they manage through the Great Resignation, they also prioritize creating a more inclusive work culture.

Joe Carbone, founder and CEO of search firm Eastward Partners, says interest in diverse candidates surged in late 2020 during the pandemic and Great Resignation, when 62 percent of searches that the firm conducted were for diverse hires.

That trend continued in 2021, when 64 percent of searches were for diverse hires. In late 2022, as the job market slowed, so did diversity hiring, Carbone notes, and that’s continued so far this year, though he’s sanguine for the second half of 2023. Wendy Norton, a managing director at search firm Norgay Partners, observes that more than three-quarters (76 percent) of the placements the firm has done so far this year have been for diversity hires.

But no one said emphasizing DE&I would be a walk in the park. It’s an initiative that requires fundamentally rethinking the entire employee lifecycle. And it requires patience. Searches can take as much as one or two quarters to execute, says Alexis Alvarez, founder of search firm Career Rockstars.

“Women view career change in a very different way to men”

Alexis Alvarez
Career Rockstars

And despite the focused efforts being made on hiring diversely, firms and recruiters are finding it more difficult to find qualified, willing talent that will help them achieve their DE&I goals.

The talent pool, at least in the US PE market, grew some 6 percent in the 12 months trailing the first quarter 2023, according to a survey by Eastward Partners, reflecting some 230,000 layoffs in the sector during that period, Carbone says.

But that increase doesn’t seem to have translated to an easier hiring market. And it’s not because firms have stopped prioritizing recruitment or diversity.

Talent management is among the most important factors in driving value creation, say 20 percent of the 405 firms surveyed by BDO in its recent 2023 Private Capital Survey (see box, below). But nearly half of respondents said they were understaffed across their firms.

There are several limiting challenges for PE firms during the hiring process. Still-heated competition for talent with industry-specific expertise – or, at the more junior level, interest in and relevant qualifications for private markets – is exacerbated by further competition for a specific pool of candidates as firms prioritize diversity.

“The firms that are really trying to make a real change are going to have an easier time finding diverse candidates”

COO of a private credit fund manager

Women and minority racial and ethnic groups are a particularly challenging pool for PE firms. Only three percent of US private equity professionals identify as women, according to Eastward Partners. And PE lags corporate North America by nine points when it comes to the proportion of female representation at the C-level, McKinsey says.

Statistics for racial and ethnic minorities broadly repeat these and other trends relating to women in the industry. More than half of entry-level women are in non-investing roles. Non-white professionals hold only 30 percent of investing roles, with Hispanic and Black professionals taking only a four percent and three percent share, respectively. The proportion of women and racial and ethnic minorities in PE overall drops severely as seniority levels rise.

The Great Recalibration

Eastward’s survey shows that some meaningful search criteria haven’t changed much. Private equity professionals primarily attended the likes of Harvard, Wharton and Stanford, where they mostly studied finance, computer sciences, business administration and economics. Some firms, Apollo Global Management among them, are increasing their focus on historically black colleges and universities and trying to develop previously untapped pools of talent. But others may be reluctant to stray from their traditions.

Perhaps the fact that women represent a plurality of entry-level positions, while racial and ethnic minorities represent a plurality at the associate level (with entry level not far behind) reflects an increased intensity of focus in DE&I recruitment; it’s not clear. The statistics may also reflect stubborn biases in the allocation of promotions.

But the anecdotal evidence does support the former interpretation. Junior-level hires, especially at the associate level, do represent the majority of demand, says Alvarez; after all, many firms are still run by founding partners for whom senior employees have long eagerly awaited retirement.

And according to data from recruitment firm Norgay Partners, 64 percent of diverse placements were for associate to senior associate, 21 percent were for vice-president and director roles, while 15 percent were for roles spanning from executive director to managing director/head of department.

Only heightening the urgency, it may yet become even harder to find diverse candidates with the traditionally sought-after pedigrees, educational backgrounds and qualifications.

Anti-affirmative action activists scored a win when the Supreme Court ruled in June that universities cannot use such programs, sending them scrambling to both comply and increase and maintain diversity among student bodies. (And some experts warn those activists will likely target corporations next.)

That means firms that haven’t already institutionalized their DE&I initiatives need to do so more urgently than ever, if they want to keep up with demand for progress from both LPs and society at large.

Women and juniors first

Building diversity into a firm from the junior level should in theory be an effective strategy. It allows firms to at least consider how they might hire from more non-traditional talent pools, perhaps to try to identify new ones, and even to contemplate training young, ambitious people with little to no experience in the sector from the ground up. (That would, of course, take substantial resources, in which, as noted above, many firms are now lacking.)

“Making sure there is inclusivity at the junior level is a great way to help foster a more balanced environment,” says Norton. “Creating an internship program that includes diverse candidates can have long-term benefits for a firm’s culture and it enables a GP to grow talent from within.”

But Alvarez advises firms to rethink their interviewing process for younger candidates.

“In my experience, early career talent, especially at the associate level, is always what’s most in demand,” she says. “And when targeting this level, sometimes firms make the mistake of showcasing the really senior folks, which of course is important, but sometimes the employees that have the most weight are those that would be considered their peers, associates and senior associates. Firms should identify those team members who will resonate best and connect with candidates at a more junior level.”

And although the statistics indicate women are still underrepresented in PE, though overrepresented in non-investment roles, Eastward’s Carbone says he at least sees a strong desire to place more women, particularly, into senior roles.

“There is a war for talent within diversity, equity and inclusion”

Joe Carbone
Eastward Partners

“The amount of DE&I candidates as a percentage that we place was much higher for women. And we have been placing women in top positions, including partners, managing directors, senior managing director, and in the C-suite,” he notes.

Norgay’s Norton says an overwhelming majority (88 percent) of the firm’s diverse hires were women in 2022. (That has decreased to 77 percent, so far, in 2023.)

But firms need to be patient when trying to hire a female candidate, says Career Rockstars’ Alvarez, as women take more time considering their career moves than men.

“Women view career change in a very different way to men,” she says. “Women generally take a longer time when making career moves and are often very reluctant to move unless they feel 100 percent secure in their career, skill set and in the firm they are about to join. So it really becomes about nurturing that relationship earlier on rather than ‘cold recruiting.’”

One COO at a private credit firm agrees that patience is key when hiring women. But those firms that cannot convincingly demonstrate a commitment to diversity, or which lack a strongly inclusive environment, will find it hard to place women in their firms.

“I would say firms need to be very intentional about sourcing and placing candidates in places where they feel like it’s a good culture fit,” the COO says. “With women that I have spoken to, they want to feel like they have a seat at the table. And they want to be part of a firm that is committed to change, and is not just looking to fill a quota.”

Of course, that’s true for diverse candidates as a whole. “There is a war for talent within diversity, equity and inclusion,” says Carbone. “It is very difficult to gain the trust and confidence of the candidates within the DE&I category, but if you have the right relationships, then it’s not impossible,” he says.

And the COO of a private credit firm says her firm has spoken with recruiters about making sure each search includes diverse candidates.

“Our commitment to DE&I is built into our business model,” she says. “In my opinion, you’re not going to make any real change within your firm if you are not truly committed to DE&I. You need to be very intentional and very purposeful in your diversity goals. The firms that are really trying to make a real change are going to have an easier time finding diverse candidates.”

Intentional approach

Building relationships is all the more important when it comes to hiring senior diverse talent. Engaging with candidates through social networks and peer groups, networking and face-to-face meetings are all necessary parts of the process, says Alvarez. She advises firms to be intentional in their approach and to nurture relationships with senior-level people.

“At the senior level,” says Norton, “I really have to uncover and talk to a lot of diverse candidates to make the right fit simply because there is limited room for flexibility. This includes talking to candidates in other geographies and finding ways to be creative to find the right person.”

Firms can always improve their hiring practices, of course. McKinsey suggests debiasing the promotion process and reducing attrition in the first place with building and fostering an inclusive culture, among other things.

“We want nothing to get lost in translation”

Wendy Norton
Norgay Partners

The consultancy notes that DE&I is defined differently from GP to GP, LP to LP. Apples-to-apples metrics are sorely needed if firms are to compare their DE&I initiatives, improve their ability to measure their own progress, and increase transparency with clear metrics and tracking capabilities

Nonetheless, patience is perhaps the biggest requirement, says the vice-president of legal and compliance for a New York-based private equity firm. “Firms have to be prepared to wait longer to find the diverse pool of candidates they want, and to find the right person with the necessary skills from among this pool.”

The chief DE&I officer of a Los Angeles-based PE firm tells Private Funds CFO that she expressed to her recruiters that time was no object to completing her firm’s diversity goals. Each search firm she engaged was instructed to include a number of diverse candidates in each search as a condition of further engagement.

“We let them know that if they couldn’t get us to our diversity goals then we needed to understand the search process and who was considered and where the recruiter searched. We understand this extends the time to fill a role, but change takes time,” she says.

Alvarez suggests three concepts that she says are necessary to achieve a true commitment to diversity: patience, purpose and intention. “Patience because DE&I recruiting does take longer, so starting your search at least one or two quarters in advance is key. You need to have clarity of purpose, in other words, understand what you want to achieve. And move with intention. Every action must be intentional.”

Praxis makes perfect

The same ‘true commitment’ to diversity is also crucial in building trust with candidates. “It’s much harder for firms to attract diverse talent when it’s evident that diversity is just considered a ‘nice to have,’” Alvarez notes.

“You want people to see that you are committed to diversity and are not just trying to check a box. They want to see a firm that is taking actionable steps to become more diverse. So, get your DE&I message out there. Identify the people within your organization that can best deliver that message, tell your firm’s story, and demonstrate your values.”

Silence is deadly. The legal and compliance VP says it can be a deterrent for candidates if a firm has been quiet about diversity. “You have to take actionable steps to show that you are focused on diversity. You want candidates to feel like they belong at your firm, that they will be valued.”

“If you’re not sincere then you’re not going to be able to retain the diverse talent you are able to recruit”

Chief DE&I officer at a Los Angeles-based private equity firm

Some firms may experience the adverse effects of being latecomers to diversity initiatives. “If a female candidate or a racially diverse candidate is looking at the makeup of the team and they don’t see an example of how they’re represented, it could be a red flag for them,” says the chief DE&I officer speaking with Private Funds CFO.

“People are no longer just joining a GP for the compensation, but for value alignment and whether they will be able to grow their career there.”

Norton says your only way to take back your competitive edge, should your firm’s current employee makeup not scream commitment to DE&I, is dedicated communication of your goals. “We want nothing to get lost in translation,” she says. She suggests firms should place their DE&I mission statement on their website and turn it into action with diversity initiatives.

“Words are not enough, there needs to be action to back it up,” she says. “Even if you don’t currently have a diverse team, showing that you value diversity, equality and inclusion as well as actively seeking diverse talent and trying to do better is important. It’s good communication from the outset of a search that demonstrates your values and your commitment. That is a way to win top talent.”

It’s also a way to retain them.

“If you’re not sincere, then you’re not going to be able to retain the diverse talent you are able to recruit,” says the chief DE&I officer. “Once people join the firm and start to feel like a token hire, they’re not going to want to be part of that.”

Data snapshot: Critical finance roles are understaffed

Most private funds say they are understaffed across their organization, not just in critical roles, according to BDO’s private funds survey.

Private fund managers are struggling to stay sufficiently staffed in a persistently tight labor market.

BDO’s 2023 Private Capital Survey found that nearly half (49 percent) of private equity managers and operating partners say their firms are understaffed in critical leadership and finance roles.

Similarly, 48 percent of managers said they are understaffed across the organization. Only 27 percent of managers said their firms are overstaffed.

Even larger fund managers, those with AUM of $15 billion and above, are feeling the heat.

Forty-three percent of those managers surveyed said they were understaffed.

In a market environment in which operational excellence at both the fund manager level and at portfolio companies will be crucial to success, talent management is a top priority. Twenty percent of fund managers cited talent management as the value-creation lever they deploy most often.


BDO’s 2023 Private Capital Survey polled 405 US private equity fund managers and operating partners, 200 portfolio company CFOs and 50 board members. The survey was conducted by Censuswide, an independent market research firm, in March 2023.