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Private Equity looks to shift the diversity dial

January 14th, 2022

Private Equity looks to shift the diversity dial

Many private equity firms are now taking serious steps to improve their diversity. How are middle-market investors playing their part?

Just as recently as 2018, 28% of investment teams in UK and European private equity firms were all-male. This year the proportion of men-only teams had dropped to 12%.

The finding is hailed by the BVCA, which carried out the research, as a “noteworthy shift.” In other areas, however, progress is slower. Whilst the proportion of women in senior investment roles has increased from 6% in 2018, the figure still only stands at 10%.

In some ways it’s unsurprising that some key indicators remain stubbornly low. Many in private equity have long recognised that the industry struggles to attract and retain diverse talent, but formal action has been relatively slow to start.

Now the case is almost universally recognised. The business performance benefits of diversity are widely accepted, and CEOs and founders are increasingly looking for partners with a shared commitment to diversity. Moreover, the FCA’s pilot data survey on board diversity in the industry, launched in October, is a sign of things to come.

The problem is that meaningful results take time to feed through, especially due to low employee-churn and recruitment rates across the industry. In order to accelerate change, firms need to really focus on recruiting from the best and widest talent pools and making long-term commitments on retention and progression.

Employee-driven DEI

One mid-market firm that has swung purposefully into action is ECI Partners. The firm has recognised the importance of diversity with its DEI strategy addressing key areas such as recruitment, retention and career development and encompassing both quantitative and qualitative targets as well as mandatory training requirements around elements such as unconscious bias and mental health.

Part of the strategy also promotes employees’ involvement in mentorship schemes, as both mentors and mentees, proactively partnering with among others #100blackinterns, Out Investors, the Level 20 gender diversity initiative and Reach Out, a mentoring charity for young people from disadvantaged backgrounds.

Critically, while approved by the Board, the initiative is owned by ECI’s employees. It’s driven by an ESG committee, with representatives from all grades with two non-partners sharing the lead on design and implementation.

Recruitment and retention

Investment director Laura Morrill, one of the DEI design leads, is confident that picture will continue to get better as focus increases on improving the key areas of recruitment and retention.

On the recruitment side of things, ECI has been refining some of its processes for key roles to broaden the talent pool it looks at and to give diverse talent more of a chance of being successful during the various interview rounds.

For example, in the investment team, the experience traditionally required of candidates – an extensive corporate finance background – is now recognised as limiting in terms of creating a sufficiently diverse pool of talent to source from. “If we’re saying that you have to have X number of years of experience, we’re putting ourselves out of contention for a lot of candidates,” explains Morrill.

ECI is also now hiring people earlier in their careers, particularly in the investment team. “With everyone looking to diversify their talent pool, hiring is increasingly competitive, so we have begun recruiting at an earlier stage and creating different grades within the investment team, so as to get someone in sooner, take a different view on their year one experience and increase the level of mentoring, training and coaching available to them.”

Initiatives

With one recent survey suggesting that 21% of women are dissatisfied with their PE careers, compared with 8% of men, measures to keep talented women on the team are clearly as critical as recruitment initiatives. For the sector at large a strengthened focus on coaching and mentoring will be key, it seems particularly in the light of a current lack of senior role models. At ECI, staff policies such as maternity and paternity leave are continually being reviewed and refreshed through the same retention lens.

ECI’s roadmap views all these initiatives as levers for diverse outcomes, and it is likely others will follow the same path. It is increasingly clear that the industry’s push towards DEI in this moment can create an outsized impact across the business community, while also increasing the likelihood of outperformance for early adopters.

Whilst not all firms are currently monitoring and tracking DEI progress like ECI, this is likely to become a more universal performance indicator in the future. “Transformation will take time, it’s not an overnight fix,” Morrill says. “But we are firm believers, and it’s supported by data, that diverse teams are better teams. They create a better culture to join and progress within, and together they deliver better results.”

In our next piece on DEI, released later this month, we will dig further into the role archetype of the CFO and explore the behavioural differences between male and female practitioners. Laura Morrill will be joining Drax on the 9th of February for our female CFO PE Networking event. If you would like to find out more information or attend, then please reach out to Lucy at lucy.obyrne@draxexecutive.com who will be happy to register you for our event.

Lucy O’Byrne

Associate Director

lucy.obyrne@draxexecutive.com

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The CFO: why private equity experience is no longer a pre-requisite for success

The Next Generation of Private Equity CFOs

Evidence is mounting that diverse teams lead to better business performance

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