For all the controversy and inflamed coverage of private equity that has appeared recently, one aspect has flown under the radar: the paucity of women ensconced in the higher echelons of PE offices.
In North America, women represent only 19.6 percent of PE professionals, a less than 1 percent increase compared with 2017, according to information from Preqin. It gets worse when it comes to senior roles, with less than 12 percent of females employed as managing directors, partners, senior managing directors/advisors, managing general partners and C-suite executives. The lion’s share of female employees is in junior roles such as analysts and associates, making up approximately 30 percent of those positions, according to the November report.
The real challenge the industry is grappling with? How to prevent senior women from leaving their firms or retiring, according to Kelly Williams, CEO of The Private Equity Women Investor Network (PEWIN), a global organization of more than 700 senior women in private equity.
“Young women need women whose career they can look up to. Regardless of what the numbers say, there is a persistent issue with keeping senior women in the industry,” Williams says. “It really doesn’t matter how senior they are or what their title is. If they’re not a founder of a firm it’s often very frustrating for them. They’re often not included in cultural decisions like deal approval, hiring, firing or promotion.”
While senior titles tend to convey that a partner has some power in the firm, it’s often the case that women don’t, Williams says.
Meghan FitzGerald, managing partner at L1 Health, agrees that more women running the dealflow is crucial. “What needs to happen? More women at the managing partner level need to be in charge,” FitzGerald says. “You need to figure out more ways for women to run the money. When you get women in a position to make the call, they’re going to be able to go to their Rolodex and change the complexion of the teams and pick the executives.”
If you ask Emily Mendell, spokeswoman at the Institutional Limited Partners Association, she’ll tell you there’s a life cycle of diversity and inclusion efforts that GPs and LPs need to move through – reaching beyond demonstrating support around the importance of diversity, and attracting, promoting and retaining diverse talent.
“Besides bringing women and minorities into the asset class, there’s a need for unconscious-bias training programs and other programs where women and minorities have an opportunity to excel,” she says.
In a world where women make up half the population, FitzGerald says she’s observed that many women are simply tired of being called diversity candidates. “A lot of women running money are a little exhausted [by this characterization],” FitzGerald says. “People are mystified. Isn’t it bad for business if you don’t have any women?”
Although women executives consistently acknowledge that the numbers haven’t changed much in recent years, awareness of the problem has. But how did we get here in the first place?
The PE industry has so few women today, given that until recently, it was really made up of thousands of smaller organizations built largely around apprenticeship-organized cultures, according to Suzanne Donohoe, who, in addition to being a partner and global head of KKR’s Client and Partner Group, co-chair’s the firm’s Inclusion & Diversity Council.
In other words, in a fragmented industry with tight-knit cultures, it’s not surprising that people historically hired those who already fit into their culture or image, or that the people attracted to those [organizations] may subconsciously be attracted to those firms, Donohoe says.
Just over 5 percent of PE firms in the US are women-owned, Goldman Sachs said in a January report on Launch With GS, a firmwide effort focused on investing in diverse teams.
The reality is, Donohoe says, many superstar women who are very capable in all the different aspects of PE aren’t necessarily raising their hands: “In part, that’s because of the role models that have historically been associated with the industry. I see that’s changing and I see at our firm a real desire to [drive] that change… We’re in some ways undoing three or four decades of history.”
Williams agrees: “If a woman is not among the founding team, she’s generally not offered the opportunity to be that successor. The only solution is for more women and people of [diverse backgrounds] to be founders of their own firms.”
The number to really watch in the next decade will be the number of firms founded by women, Williams says.
PEWIN, in fact, has a program specifically focused on encouraging more women to start their own funds. Project Pinklight, simply put, is a fund accelerator. The program’s panel of GPs and LPs don’t provide capital, but everything else, Williams says: input on fundraising, as well as strategic advice on things like team and firm structure.
About a year ago, four of PEWIN’s members – Adele Oliva of 1315 Capital, Hollie Haynes of Luminate Capital Partners, Kristina Heinze of ParkerGale Capital and Kate Mitchell of Scale Venture Partners – closed a fund over the span of six months, raising a total of $1.5 billion, says Krista Hatcher, Co-President of PEWIN and partner of Chicago Pacific Founders, a healthcare-focused private equity firm.
Hatcher is optimistic. “I do feel that we are making a lot of progress. You haven’t seen that level of founder-led, women-led fundraising [in the past],” she says. “I do think there is change, whether it’s people being more open-minded or more women [advancing to senior levels]. Any change is slow, but it’s happening.”
As organizations scale, things are also starting to change, KKR’s Donohoe says. “In the last five to 10 years you’ve had a number of firms become much larger institutions, professionalize, and recognize that having a broader perspective can help in driving better performance. It’s a war for talent and you really want to have a broad lens in competing for the best talent and be seen as an attractive destination for the best.”
McKinsey, in a 2015 report, stated that companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians. Similarly, Goldman’s January report stated that funds whose representation of women is 30 percent or greater realize net IRR of 1.7 percentage points higher than male-or female-dominated funds.
In fact, Goldman launched a unique initiative that was partly driven by its thesis that diverse teams outperform. Led by Goldman’s Stephanie Cohen, Launch With GS is not focused on the makeup of women within its own firm, but rather, within the companies where it puts money to work.
In connection with the initiative, the firm made a commitment to invest $500 million in women-led companies and investment managers. As of January, Goldman says it has committed $150 million so far – with investments including a Chinese pediatrics company, a New York retailer and a California data analytics company.
TPG, which began an initiative in 2017 to measure and improve the gender diversity of its portfolio companies, has helped to appoint more than 65 women as directors in the period since, the firm tells Buyouts.
At KKR, the firm’s Inclusion & Diversity Council, or IDC, focuses on recruiting, external partnerships, the revision of policies and retention of senior women. With more than 60 percent of KKR employees characterized as millennials, the firm is working to shape its policies around those they employ and seek to employ, Donohoe says: “When we look at the demographics of our people, a very large percentage of them are in the cohort of those who may be considering starting a family.”
The IDC has implemented changes such as extended paid parental leave, which is up to 16 weeks, in addition to unlimited IVF coverage and egg freezing, among other fertility care benefits, she says.
At TPG, the parental leave policy offers primary and non-primary caregivers 18 weeks and four weeks paid leave, respectively, the firm says. In both cases, four of those weeks – the final four in the case of primary caregivers – can be taken intermittently over the first year of a new child’s life. The firm also conducts annual firm-wide unconscious-bias training, as well as an employee-resource group dedicated to TPG women, among other initiatives, the firm adds.
KKR has developed more unconventional policies to support women transitioning back into work life. That includes what is referred to as the “flying nanny policy,” through which KKR pays for new parents to bring their infant and caregiver while traveling on business during a child’s first year. KKR also offers to ship breast milk if a new mother is traveling, the firm says.
At KKR, the firm’s total number of women in senior roles has grown 3x since 2014, when it formalized its inclusion and diversity effort, while the number in investing roles has jumped 24 percent from 9 percent, the firm tells Buyouts.
Carlyle Group is another firm that has made major strides among the bulge-brackets, with approximately half of its $222 billion assets under management by women, the firm says. Forty-three percent of Carlyle’s overall workforce is women, including 90 senior-level women – more than half of whom are on the investment side. Women make up 24 percent of its senior leaders in the US, and 20 percent globally, Carlyle says.
Its leaders have also made big names for themselves. For example, Sandra Horbach co-heads Carlyle’s US buyout platform, with its latest fund, Carlyle Partners VII, closing in 2018 at $18.5 billion – the industry’s largest US buyout fund at the time.
Elsewhere, L Catterton’s 2019 employee headcount is nearly 45 percent women globally, with women representing just over 28 percent of professionals in investment and operating roles. At TPG, women hold 25 percent of senior roles and 18 percent of all investment roles globally, the firm says.
Recruiting young women has been a priority at some firms, including TPG, General Atlantic and Warburg Pincus in recent years.
At Warburg, the firm’s 2018-21 US associate classes are or were 50 percent women, a source close to the firm says.
Similarly, approximately 50 percent of TPG’s last two associate classes are women or racially/ethnically diverse, the firm said.
General Atlantic, meanwhile, launched a sourcing program in 2018 for analyst-level positions, through which it recruits women directly from undergrad, a source close to the firm says. The numbers reflect that, with 26 women representing 43 percent of junior-level professionals at GA. While women in analyst or associate roles are well represented, the tally at the senior level, across both its investment and core investment support teams, is five, the source says.
From a recruitment perspective, L1’s FitzGerald says there needs to be a better influx of women in PE coming in from areas beyond finance. “I’m not conventional,” FitzGerald says. “I came out of corporate America. I picked a firm that had long, patient capital and wanted to build things. I didn’t have to be an investment banker.”
Before joining L1, FitzGerald was executive VP of strategy, M&A and health policy at Cardinal Health and a member of the executive committee. Prior to Cardinal Health, she worked in the healthcare industry at Medco Health Solutions, Pfizer, Merck and Sanofi-Synthelabo.
In FitzGerald’s experience, you need to set up a carefully curated path to a career in private equity if you come from a less conventional background. “Finding the right fit for yourself will set you up for success,” she says, adding: “Finding mentors and sponsors that can fill in gaps in some of the tools used in PE is really important.”
Action needed from LPs
LPs are having more conversations than ever about the diverse makeup of investment teams. But at the same time, “what we’re not seeing yet is real action being taken on investment decisions – based on diversity numbers,” according ILPA’s Mendell. “LPs have to start investing in more diverse managers. It has to be the norm and not the exception.”
ILPA in 2018 updated its due-diligence questionnaire by adding new questions that address both diversity and inclusion and sexual harassment. The organization expects to launch a new initiative in February that has been in the works for the better half of six to nine months, Mendell says. ILPA’s “D&I roadmap” will encompass best practice lists in the areas of diversity, inclusion and culture as well as a database of resources that GPs or LPs can access.
“The goal of this roadmap is to be a centralized place where folks can review what others are doing and what organizations are out there,” Mendell says.
Mendell notes that while gender is front and center in the diversity debate, there is more work to be done. “We’re looking at minorities and LGBTQ communities and other [groups] who may feel they need representation,” Mendell says. “There is such a vast opportunity to do better. As we start to mature we’re hoping the conversation goes beyond gender – there’s even more work to do with minorities.”
Some firms, such as TPG, are pledging just that. “We continue to prioritize diversity at all levels at TPG and are committed to continued and sustainable progress,” says Anilu Vazquez-Ubarri, partner and chief human resources officer at TPG. “This focus expands beyond gender, to diversity in race and ethnicity and also sexual orientation.”
Correction: A previous version of this story misspelled Krista Hatcher’s last name. The story has been updated with the correct spelling. The story has also been updated to clarify TPG’s parental leave policy.
Update: This story has been updated to clarify Fitzgerald’s comment that women are tired of being called a ‘diversity candidate’; Not tired or exhausted by the work.