Moving toward gender balance in private equity and venture capital
This report examines the gender gap in the private equity and venture capital industry, specifically in emerging markets. The correlation between gender balance and fund performance is explored. This report puts forward key actions to improve gender balance and examines the benefits of its improvement in leadership teams.
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OVERVIEW
Women are significantly underrepresented among the investment decision-makers at private equity and venture capital firms, as well as in the leadership of companies that receive this investment capital. This report explores the relationship between gender balance and fund performance, and the roles that General Partners; the vehicles investing private equity and venture capital funds, and Limited Partners; the source of capital, can play in alleviating gender gaps in investment funds and their portfolio companies. As private equity and venture capital are still developing in many emerging markets, changes made now can have a significant impact in the long run to move the industry toward gender balance. This report will answer three key questions:
- How gender balanced are leadership teams of General Partners, which allocate capital, and of portfolio companies, which receive investments?
- Are there benefits of moving leadership teams toward gender balance within General Partners and portfolio companies?
- What can General Partners do to move toward gender balance in their leadership teams and those of the portfolio companies they invest in?
To answer this, performance and gender diversity data from more than 700 funds and 500 portfolio companies is analysed. Additionally, over 500 survey responses from General and Limited Partners as well as over 50 interviews with industry experts are examined.
Key findings show that Limited Partners generally view gender diversity as important, but this importance is not seen by General Partners. For General Partners, only 11% of senior investment professionals in emerging markets private equity and venture capital are women.
The report highlights that performance of gender balanced investment teams is correlated with higher returns, and the lack of gender balance is reinforced through the absence of diversity goal setting and recruiting practices. This saw almost 70% of senior investment teams being all male among General Partners. However, 67% of General Partners placed gender balance as a priority for their firm.
Amongst portfolio companies, only 7% of private equity and venture capital is found to be invested in female-led businesses, with around 20% of portfolio companies having gender balanced senior leadership teams. Portfolio companies with gender balanced leadership teams are correlated with 25% greater increases in valuation than unbalanced teams.
It is recommended that Limited Partners ask about gender diversity in the due diligence process, as this will influence General Partners to prioritise gender balance. It is also recommended that Limited Partners establish investment goals and targets related to the diversity of investments. This will demonstrate to General Partners that the organisation is committed to improving issues of diversity.
For General Partners, it is recommended they establish gender diversity from within top management. This will increase retention of junior female employees. Furthermore, it is recommended that General Partners support an internal environment that does not force a choice between family and career. Finally, it is recommended that General Partners engage portfolio companies at the time of, and after investment, to drive change on gender diversity.
KEY INSIGHTS
- Private equity and venture capital funds that have gender balanced teams have a 20% higher net internal rate of return.
- In private equity and venture capital funds only 15% of senior investment teams are gender balanced.
- 65% of institutional investors consider gender diversity as important when investing, however, only 25% actually ask about gender diversity in due diligence.
- Female partners invest in around 2 times more female entrepreneurs compared to male partners.
- Only 20% of leadership teams in portfolio companies are gender balanced.
- Portfolio companies that have gender balanced teams have higher valuation increases; 64% versus 55%.
- Gender balanced teams have between 30% to 70% females in leadership roles.
- Women hold only 10% of all senior positions in private equity and venture capital firms globally, and women-led enterprises collected less than 3 percent of global venture capital in 2017.
RELATED CHARTS
RELATED QUOTES
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“Senior leaders positioning diversity as a priority to improve firm performance can set the tone for the rest of the organization, but it has to be backed up with concrete action. For example, by publicly setting targets and goals.”
Page number or webpage section: 55 -
“Senior leaders need to believe in improving gender diversity wholeheartedly, or else it’s just being ‘politically correct.’ If it’s not coming from the top, then it will fizzle out.”
Page number or webpage section: 56 -
“Tone at the top to affect change is a truism. Gender diversity will not improve unless there is tangible commitment from the most senior leaders. They have to ensure that this permeates through decisions in hiring, promotion, mentorship and sponsorship.”
Page number or webpage section: 57 -
“The first step is establishing the right tone from the top. Managers need to establish improving gender diverse outcomes as a priority. Set targets, track progress, and hold yourself accountable—comply or explain.”
Page number or webpage section: 59 -
“We believe that companies with gender-diverse boards are more likely to achieve superior financial performance over the long-term.”
Page number or webpage section: 61 -
“This is a people business. If you are not trying to attract and retain the best candidates, then you’re disadvantaging yourself. You can double your talent pool and diversify your skillset by actively reaching out to women. Why deny yourself alpha-generating diversification by ignoring half the work-force?”
Page number or webpage section: 64 -
“I’ve never encountered a company that wanted our investment but wouldn’t comply with our environmental requirements. That’s not going to happen. Include ‘policies conducive to gender diverse employment’ in the list of requirements of potential targets upfront and there will be significant change.”
Page number or webpage section: 90 -
“As industry leaders, we want to drive meaningful change in the communities in which we operate. Fostering open conversations about diversity and inclusion in the workplace is the first step to doing that. More inclusive and diverse workplaces empower employees to deliver their best, leading to better business outcomes.”
Page number or webpage section: 93
