The Private Equity Industry has made strides in terms of diversity, but this progress is slow-moving. While many people see the value in diversity and inclusion, there are still problems with how inclusive the industry is.
According to a CNBC report, “women make up 2% of private equity partners. Meanwhile, 90% of senior investment teams are all white."
This number is astonishingly low compared to other industries that have higher female representation. Industries such as finance and accounting have an average of 20% female representation which demonstrates there are ways to improve diversity in private equity.
Another minority demographic, and one that is even less represented than women, is people of colour. According to industry reports, just over 3% of senior roles at LPs were held by people of colour. This lack of representation becomes a problem when the industry looks to promote diversity and inclusion initiatives. If there is no one to represent these groups, then how can the efforts be successful?
Even though many barriers are being broken down, there are still several problems that exist for women and minorities seeking employment in private equity.
"Among firms with multiple funds, only 22% have more than one female partner."
This statistic alone shows how far behind other industries the private equity industry is.
The Private Equity industry has been making strides towards a more diverse and inclusive workplace for years. In recent years, there have been several initiatives put in place by organizations, such as the Institutional Limited Partners Association (ILPA). In 2016, ILPA updated their diversity initiative in order to provide a more detailed and actionable plan for promoting a culture of inclusivity within the industry. Part of this updated diversity initiative includes a Diversity Survey, which can be found here: http://www.ilpa.org/members/committed-to-diversity.
There are also initiatives that aim to highlight the success of women who have succeeded in the private equity industry. Backed by GPs, limited partners and large corporations, these programs seek to show that gender diversity has positive effects for both men and women.
In addition, many private equity firms have created their own initiatives for promoting diversity within the workplace. In 2015, Stepstone Group launched the Stepstone Women’s Initiative Network (SWIN), which is a collaborative effort to increase gender diversity within the industry.
In Europe, diversity groups such as Level 20, PEWIN, The Diversity Project and 1,000 black interns continue to empower the narrative, research and enablement of greater diversity.
The Pipeline Problem:
The issue of diversity in the private equity industry is often referred to as a pipeline problem.
Many feel that women and minorities are not entering the workforce at the same rate as their white male counterparts, which could be because there are barriers that must first be broken down by those who seek entry into these prestigious positions.
"A large barrier to entry is the lack of women and minority students in undergraduate and graduate private equity programs."
Another part of the pipeline problem is the lack of support offered by organizations seeking a diverse workforce. According to Catalyst, "75% of women managers felt they were not sufficiently prepared or trained for their current roles."
This lack of support often discourages women and minorities from seeking employment in the private equity industry.
The pipeline problem is compounded by the fact that most individuals do not believe they are qualified to apply for senior positions in their respective fields. According to a Stepstone study, only 29% of Millennials feel prepared to apply for a job at their desired level without gaining additional experience. This leaves those who already feel unqualified, even more unlikely to pursue senior positions in the private equity industry.
Hiring Diverse Talent:
When it comes to hiring diverse talent, there are many factors that must be considered. When assessing whether or not an individual is a good fit for the position, employers will usually consider several characteristics, such as educational background and salary requirements. However, when it comes to diverse hiring practices, one of the most important things companies should look at, is the individual's cultural background.
A study by the Boston Consulting Group found that employees who come from similar socialization backgrounds are less likely to embrace diversity in the workplace. This has led companies to hire individuals who have not only gone through the same educational paths but also those whose cultural backgrounds are similar.
This can be a limiting factor for individuals who wish to pursue senior positions in the private equity industry.
In addition, many companies have put certain requirements on their job applicants that can prove difficult for women and minorities to achieve. For example, some employers require recommendations from specific individuals in order for them to hire a candidate. This requirement poses a problem for women looking to enter the private equity industry as they often lack mentors who are willing to vouch for their abilities.
Companies must do more to promote diversity within the private equity industry. Perhaps, most importantly, companies need to re-evaluate their criteria for hiring potential employees. For example, recommendations should not be required when looking to hire diverse talent. This is because many women who apply for senior positions in the private equity industry have not had the networking advantages that their male counterparts have.
Companies should also consider an individual's cultural background when assessing whether they are qualified for a senior position within the company. For example, if two people applied for a senior role in an investment firm but one came from a different socialisation background than the other, this should be offered as a factor when considering whom to hire. Understanding diverse backgrounds and experiences is important because it allows companies to understand how individuals will interact within the workplace environment.
While many of these efforts have come a long way in creating greater diversity within the private equity industry, it still has a lot of growing to do to achieve true inclusion.
For diversity and inclusion initiatives to be effective, there must be a conscious effort from both employees and employers that will allow them to "raise awareness of unconscious biases relevant to the workplace." When it comes to private equity firms, this means not only hiring diverse individuals but also ensuring that they're treated equally in the workplace.
Inclusion also requires a commitment from both parties to develop a workforce, which is representative of the talent available in the market. According to an article by SAP, "increasingly diverse workforces require organizations to rethink their talent acquisition models, as well as how they use and deploy this talent."
This can be done through several methods, such as "investing in training and development, ensuring that talent is spread throughout the organization, rather than concentrated at the top."
The greater diversity of opinions and therefore thought processes can lead to an increase in innovation. The more perspectives that are brought into a room, the greater chance for success in any project.
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