Alternative Insight – March 2016
Women in private equity: Cracking the glass ceiling
Women have been under-represented in private equity for as long as the industry has been around. But there are encouraging signs that things are changing.
As the film industry likes to remind us, the world of high finance can be a very macho place. Recent academic and industry research suggests that women hold just 16% of senior posts in investment banking and 12% in asset management. In the world of private equity, it’s estimated that around 11% of senior executives are female. If you exclude the legal, HR and investor relations departments, which are thought to be more female-friendly, then the percentage of women working as senior PE executives is even lower.
Why so few?
- The candidate pool. Most people working in private equity today began their careers in investment banking or asset management. As the figures quoted above indicate, these industries are already quite male-dominated, so there are simply fewer women than men who have the background that PE firms traditionally look for in applicants. Some industry insiders consider this the single biggest obstacle to getting more women into private equity, which would provide a more diverse base of talent from which to promote into the upper reaches of the hierarchy.
- Feeling more comfortable with the familiar. The tendency to hire (or promote) people just like you is one that cuts across geography and industry. Scientific research shows that we “connect” better with people when we have things in common with them – e.g. background, experience, attitude or physical appearance – and this mutual simpatico often (even if unintentionally) becomes self-reinforcing. The private equity business is only around forty years old and in that time has been led and staffed predominantly by men, which might explain why this type of built-in preference remains strong in the industry.
- Negative perceptions. Some argue that women are put off by negative perceptions of private equity relating to work/life balance and the lack of flexible/agile working opportunities. However, while it’s true that private equity has a long hours culture, this is also the case with banking, law, consulting and medicine, and that has not stopped women making significant inroads into those professional hierarchies.
What do investors think?
Coller Capital, conducting a broad-based survey of investors back in 2014, found an overwhelming majority of LPs agreeing that gender diversity improves “team quality” and “team dynamics”. Yet, in that same survey, just 12% of LPs said they believed that investment returns would be better if women occupied more leadership positions at their GPs. Actually, studies of the broader market show that having more women in senior positions impacts positively on financial performance and risk evaluation. Encouraging diversity, it would seem, makes business sense.
There are signs that the industry recognises that it needs to increase female representation at all levels:
- There is some anecdotal evidence that LPs are raising the question of female representation more and more with GPs in pitch meetings. LP pressure has certainly helped to push GPs to reform in other ways, e.g. greater transparency on fees and expenses. While we are still a long way from diversity requests becoming commonplace, there are some (typically big institutional investors, like public pension plans) that do include diversity in their selection criteria.
- Some high-ranking women in the industry have struck out and established their own firms. Meanwhile, a number of big PE firms are expanding their recruitment pool beyond their traditional favourite haunt of investment banking and into management consulting, which has better female representation. They are also putting more effort into graduate recruitment – attending careers fairs, increasing the number of summer internships – which allows them to market private equity careers directly to young women and others who might not traditionally self-select for finance.
- There are several successful women-led groups actively trying to tackle the issue and raise the profile of women in the private equity Industry. For example, Level 20 focuses on educating firms on how to recruit, mentor and nurture women in the industry. The BVCA Women in Private Equity Forum is a prestigious event that brings together some of the industry’s most successful GPs and LPs.
What about positive discrimination?
‘Affirmative action’ type programs are not compulsory but can engineer change more quickly. For instance, some big firms are opting for explicit or informal hiring targets in order to improve female representation among their PE analyst and associate classes. In the UK, growing awareness that there may be an unconscious gender bias affecting hiring patterns has led a few GPs to opt, within the remit of section 159 of the Equality Act 2010, to positively discriminate in relation to recruitment and promotion. To avoid slipping on any banana skins, the employer needs to be able to demonstrate that a successful female candidate, for example, is disadvantaged or under-represented and “as qualified as” other eligible applicants. Any action taken must be proportionate to achieving a particular aim.
Although the numbers have a long way to go, there are some tremendously successful, ambitious and innovative women taking the private equity industry by storm, both as founders of new firms and at ‘bulge bracket’ giants. This should help contribute towards raising awareness of the gender bias in the industry, offer young women a growing band of female role models to aspire toward, and assist firms and investors who want to do something more about it. Awareness and action are the stepping stones to bringing about change.