A trillion dollar industry with a diversity problem.

Private Equity & Diversity; according to a McKinsey study, women make up only a small fraction of leadership in Private Equity firms; they account for 12% of managing directors and 16% of principals and partners in investment roles. Less than 1 in 10 on Investment Committees are women and the number drops to a staggering 1 in 100 for women of color. While over 33% of entry level investment positions are women, PE continues to be a male-dominated field.

Some key reasons for this lack of diversity include:

1. Network Effect: The industry has relied heavily on personal networks and relationships for deal sourcing and talent recruitment. This can result in a lack of access for individuals who are not part of existing networks, often excluding underrepresented groups.

2. Unconscious Bias: Unconscious biases can influence decision-making processes, leading to the perpetuation of homogeneous teams. These biases can affect how opportunities are allocated, and diverse candidates may face additional challenges in accessing and advancing within the industry.

3. Limited Pipeline: The private equity industry traditionally recruits talent from finance, consulting, and business backgrounds. Underrepresented groups may face barriers to entry due to limited access to these networks or opportunities. This lack of diversity at entry-level positions can limit the development of a diverse talent pipeline.

4. Culture and Perceptions: The culture within private equity firms can be demanding and competitive, which may not be perceived as inclusive or accommodating to individuals from diverse backgrounds. Stereotypes and lack of representation can deter potential candidates from pursuing careers in the industry.

The Business Case:

This 10 trillion-dollar industry has yet to make considerable progress in DEI programs. If more women were to hold higher roles, companies would enjoy more transformational opportunities such as higher returns on investments/assets, reduction in bid premiums on mergers & acquisitions, and the ability to allocate assets more efficiently. Some studies even show that companies with women on the board are more socially responsible. Companies that are diverse in gender and race have a better chance of landing business that serves women and minoritized groups. In fact, according to Morgan Stanley’s calculations, missed opportunities come in at a whopping $4.4 trillion.

While progress has been made, there is still work to be done to achieve greater diversity and inclusion in private equity. Continued efforts to address biases, expand networks, and create more inclusive cultures are essential to foster a more diverse and equitable industry. PE firms will benefit from fixing their diversity equation if they want to do well over in the coming years. Is your company looking to increase its diverse talent? Connect with any one of our Practice Leaders.