Finance
Making private equity more inclusive for women is key to future success
Global Banking & Finance Review®
Company
Sophia Siddiqui
Melissa Borschnack
By Melissa Borschnack, Director and Sophia Siddiqui, Senior Manager at GRAPH Strategy
The private equity market has been buoyant over the past 18 months, with an increase in both the number and value of deals. Alongside this growth in deal volume and size, firms also achieved record-breaking fundraising, another indicator of a red-hot market.
In this competitive market where private equity firms need to move faster, pay higher multiples, and have more conviction in their decisions, every advantage is meaningful.
Increasing diversity in deal and diligence teams is of increasing importance in this challenging deal environment. A diversity of perspectives can bring to bear identification of corporate/legal risks, innovative new use cases of products, and purchasing behaviour nuances that may have otherwise been missed by a more homogenous team.
At the same time, driving towards higher levels of female representation can allow private equity firms to strengthen their talent pipeline, realise greater levels of employee engagement and retention, and deliver stronger performance against business metrics.
The importance of women on private equity deal teams
It’s no surprise that women are a key input in the economy and in spending decisions. They control about $32 trillion in annual consumer spending globally, according to Catalyst. In fact, Forbes notes that in the U.S., women direct approximately 80-85% of consumer spending.
Women are making strides in the workforce and taking on more positions where they influence or make decisions for companies. Therefore, understanding women’s perspectives is critical to successfully conducting rigorous analysis that correctly considers women as major decision-makers, whether as an individual consumer or a corporate buyer.
Private equity firms have made some progress, but Prequin’s Women in Alternative Assets 2021 report notes that just 20.3% of the industry’s employees were female at the end of 2020, up slightly from 19.7% in 2019. This number falls even further when looking at leadership positions, with women accounting for only 12.2% of senior roles and only 5.2% of board seats at these firms.
The benefits of diverse deal and diligence teams
Teams with more diversity and greater gender representation are able to leverage each individual’s unique background, experiences, knowledge, and thinking, leading to more thoughtful and robust insights to inform the investment thesis.
In our experience as a commercial due diligence provider, we’ve witnessed how diverse teams can deliver unique insights to clients.
By understanding customers’ perspectives of the target asset, deal teams uncover insights pertaining to true strengths, challenges, and opportunities to inform product and service quality, brand equity, key purchase criteria, and sales team quality. However, turning the raw feedback into quality insights requires significant art (and science). This is where having diverse perspectives and experiences add value.
How to continue building progress
The improved outcomes associated with diverse deal and diligence teams, paired with a broader cross-industry movement towards Diversity, Equity and Inclusion, and increasing investor interest in diversity, will continue to drive greater rates of women and minority representation in the PE industry. Understanding what stands in the way of achieving such benefits is vital to creating a path for more balanced representation.
Private equity firms’ efforts to date to achieve balanced gender representation can serve as the foundation for future progress, particularly as the industry seeks to close the representation gap on deal teams and in senior positions. As noted in BVCA’s (British Private Equity and Venture Capital Association) Diversity & Inclusion Report 2021, 88% of firms surveyed have gender-diverse investment teams, compared with 67% in 2019 and 72% in 2018.
Achieving gender representation is important, and central to that is creating workplace environments that are supportive of women and the structural challenges they often face.
Some key tactics to consider when driving forward are outlined below:
Overall, the representation gap presents an opportunity for private equity firms to identify ways to better attract and retain women. By driving greater gender diversity across the industry, firms can allow for an improved breadth of perspectives when conducting diligence and evaluating business models.
Diverse deal and diligence teams bring a broader network of relationships and myriad different experiences and perspectives that can be vital in relating to management teams, as well as to assess and close deals that ultimately result in greater outcomes and higher returns.
Private equity refers to investment funds that buy and restructure companies not listed on public exchanges, aiming to improve their financial performance before selling them at a profit.
Diversity in the workplace refers to the inclusion of individuals from various backgrounds, including race, gender, age, sexual orientation, and abilities, fostering a more innovative and effective environment.
Employee engagement is the emotional commitment an employee has to their organization, which influences their level of effort and performance at work.
Consumer spending is the total amount of money spent by households on goods and services, which is a key driver of economic activity.
Explore more articles in the Finance category
