IWD 2024: Advancing women in private equity could have dramatic global impact

In the field of fintech, I have been a consultant and observer of the private equity industry for 20 years. When it comes to elevating women in the industry, I believe it is poised for change, and these changes could be hugely impactful, not just at an organizational level but even more broadly in society. 

Private equity is a global economic engine for business innovation, expansion, and job creation. It also provides a path for making underperforming and distressed businesses more profitable and successful. It is an integral part of the economic ecosystem that now manages upwards of $13 trillion in assets globally. Because of its financial power, the evolving gender makeup of the private equity industry could have wide-reaching global economic implications that make its progress pertinent for nearly all.

The Transformative Influence of Increased Female Participation in Investing Decisions

The inclusion of women on private equity investment teams—the people who make critical decisions about how capital is deployed—is still at disappointingly low levels. According to McKinsey, women hold only 33 percent of entry-level investing roles, and only 15 percent of managing-director-level investing roles. Progress has been made, albeit quite slowly.

This underrepresentation has consequences. Women bring unique perspectives and insights to the investment decision-making process, often shaped by their different backgrounds and life experiences. This diversity of thought leads to a more robust analysis of potential investments and brings new considerations and opportunities to the table. Leveraging their different networks and worldviews, women are more likely to champion potential investments in areas that have been traditionally overlooked, such as businesses with a social impact focus.

Additionally, large-scale research by HEC demonstrated that gender diversity in private equity is more than a moral call to action; it has a bottom-line impact on results. HEC analysis showed gender diversity produces higher returns and a lower risk of failure than all-male teams. When it comes to diversity in general, evidence continues to mount that more diverse teams perform better across a number of dimensions, such as creativity, problem-solving, and employee engagement.

Female Talent Progression: Moving from Trickle to Flow

It's important to note that the current picture of gender parity at the entry level of private equity is looking far rosier today than in years past. McKinsey research showed that at the end of 2022, the gender balance was nearly equal, with 48 percent of all entry-level roles in private equity held by women.

But, a closer look reveals a more complex reality across the distribution of women across roles and career advancement. Women in impactful, decision-making senior roles at private equity firms are just shy of 10%, and the number continues to fall as you look upward the ladder. 

Supporting women's ascent into higher roles is critical in order for their unique and valuable contributions to be meaningfully felt. At the current rate of progress, reaching gender parity in investing roles at the managing director level would take more than six decades.

So, how can we accelerate the female talent progression? The right combination of internal and external forces already brewing today may provide a needed boost.

The idea of mentoring and networking programs specifically for women have taken root, with a new landscape of these opportunities continuing to emerge. In addition, within private equity firms, women need internal sponsors that can directly impact their career advancement. Unlike a mentor, a sponsor can support their growth within the firm and advocate for career advancement. Most sponsors would carry the required weight within the organization to drive the internal culture changes needed to slow the leaky pipeline of talent and help firms experience the full benefits of women integrated throughout the organizational ladder. 

In a time where ESG (environmental, social, and governance) is gaining prominence globally, the "S" factors in ESG, such as gender balance and diversity, are weighing more heavily on how investors engage with private equity firms. Investors increasingly expect data from the firm's investment teams about representation, and firms that don't demonstrate progress on gender parity may find it harder to raise funds. ESG considerations are encouraging firms to examine and address potential structural barriers that may have impeded women's progress in the past and are serving as a catalyst for greater gender inclusivity.

Accelerating Organic Change

Though change has happened slowly, the indicators signal that private equity is on the path of progress. Alongside growing calls for the social responsibility of gender parity in private equity, data is accruing in favour of the pragmatic, results-driven reasons for doing so.

Even in light of the compelling evidence, change that is sustainable and impactful ultimately can't be forced, even for the worthy goal of making progress happen faster. Firms don't want to choose candidates solely on gender any more than intelligent women want to be hired for reasons other than their merits.

My hope is that in the current climate, a blend of social consciousness and evidence-based logic will align with purposeful intent to fuel organic transformation. My optimism rests on it being sufficient to motivate private equity leaders to scrutinize their firms and instigate deliberate action, dismantling obstacles and reshaping organizational culture in a manner that promotes and elevates women in the profession. The potential impact could be profoundly beneficial for everyone involved.