Study underscores PE’s lack of diversity

Less than half of private equity firms have a women or minority managing partner that has influence or control over the investment decision making process, according to Rothstein Kass research, which surveyed 215 private equity firms (the large majority of which were US-based) about their office demographics. 

“In the face of growing research that shows women and minorities tend to outperform the overall investor universe, and in the wake of growing investor demand for diversity funds, it will be interesting to see how these demographics shift in the coming months and years,” commented in the report Andrea Kalliaras, audit principal at Rothstein Kass.

Last October, a study published by the National Association of Investment Companies, which represents diverse and minority-owned private equity firms who focus on the US, revealed that firms which have greater diversity amongst their staff have produced superior returns than their rivals since 1998.

So why aren't more GPs diversifying their investment teams? Rothstein Kass director Meredith Jones points to historical factors to help explain the lack of progress. In an interview with PE Manager, Jones said that many investment professionals are given senior positions when poached by rival firms, or create their own leadership position by going it alone in a spin-out fund. However, in a chicken and egg type conundrum, women and minorities have not been afforded these opportunities to rise because of their historical lack of presence in the industry. “This builds on itself over time,” added Jones.

LPs who want to see their own organization's diversity reflected in their GPs may accelerate the trend for more women and minority group deal professionals. 

“If you look at the composition of the public pension plans, the majority of the people making the decisions with GPs is diverse,” said pantheon principal Yokasta Segura-Baez. “They have women, minorities; they want to make sure there is a fair allocation of their capital to people who represent their interests.” 

Not one to just talk the talk, Pantheon recently teamed up with Sponsors for Educational Opportunity (SEO), a non-profit organization that provides education, exposure, training and mentoring opportunities to minorities. Pantheon will now offer summer internships in its New York office to participants of SEO’s programs. 

Pantheon will also be involved in SEO events, including educational workshops, to help encourage more minority college undergraduates to become interested in careers in private equity.

One might expect other private equity firms to follow suit to leverage diversity mandates, said Kalliaras. “However, if the past is any indication, the process is likely to be one of evolution, not revolution.”

For a more in-depth look at diversity in private equity firms be sure to check out the July issue of PE Manager.