
Private equity and value creation: A fund manager's guide to gender-smart investing
This report examines the increase in adoption of gender-smart investing within the private equity industry by general partners (GPs) and limited partners (LPs). Lessons from over 160 fund managers have been utilised in this step-by-step guide to choosing gender-smart investment strategies, and putting policies into practice within firms and portfolios.
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OVERVIEW
Gender-smart investing is an investment strategy that uses capital to solve gender inequalities. This report offers fund managers strategies to increase gender diversity in their firm and use a gender lens when making investment decisions. It also outlines the benefits for both general partners (GPs) and limited partners (LPs), as they scale up investments with a gender focus. Findings are discovered through analysing the dialogues and experience of more than 160 fund managers, including an extensive array of case studies. The pandemic has seen an increase in the importance for the private equity industry to focus on value creation strategies, to help portfolio companies recover strongly and remain resilient. This has led to an increase in the adoption of gender-smart investing by both GPs and LPs.
Gender-smart investing allows companies to embrace new opportunities and manage risks. Evidence has shown that it can increase business competitiveness and unlock opportunities for growing profits. Through embracing gender investing, private sector investments can remove gender gaps and contribute to better working markets. However, both GPs and LPs require more guidance to understand how to implement gender-smart investing. The adoption of gender-smart investing can be implemented by fund managers at the firm level by focusing on the diversity of their own investment teams. And at the portfolio level, fund managers can allocate capital to companies that meet certain criteria, for example, female representation within management. In order for impactful changes to be made, firms must identify the behavioural changes needed to address gender gaps.
The report suggests fund managers begin to consider what it means to maintain a gender lens when exiting an investment, to maximise gender outcomes, and mitigate the risk of losing progress on gender equality with buyers that may not (yet) be as committed.
Further, LPs should ensure they are increasing the adoption of gender-smart private equity investing in emerging markets. This will, in turn, influence GPs to increase their gender diversity strategies to wider markets.
It is recommended that LPs ask GPs about their gender-smart investing strategies when conducting due diligence, for both new deals and in portfolio management for existing investments. At the firm level, for GPs it is recommended they begin by increasing gender diversity within their firm through the investment team. Second, they should ensure they are cultivating a respectful workplace that has an anti-sexual harassment mechanism, as this is an issue that is more prevalent when there are large power differentials between genders. Finally, GPs should ensure they develop a firm wide gender-smart investing strategy for individual deals.
At the portfolio level, GPs should select a gender lens that is relevant to the fund’s core investment thesis. This will allow fund managers to work with companies to identify where there are gender gaps. Secondly, GPs must apply a gender lens within each investment deal and across the portfolio. Finally, GPs must ensure they are measuring the gender lens outcomes. Fund managers can focus on gender-smart investing for existing investments through portfolio management, portfolio measurement and exits.
KEY INSIGHTS
- Evidence shows that gender-smart investment strategies can help grow a company’s competitiveness, solidify its supply base, improve its human capital, and help build an overall enabling business environment.
- The volumes of capital raised with a gender lens across private equity, venture capital and private debt quadrupled from $1.1 billion in 2017 to $4.8 billion in 2019.
- Deal structuring with a gender lens is relatively new and will support fund managers to innovate and grow in sophistication.
- Limited partners (LPs) have a critical role to play in driving the adoption of gender-smart private equity investing in emerging markets.
- Research from IFC shows about 65% of LPs view gender diversity of a firm’s investment team as important when committing capital to funds; however, according to General Partners (GPs), only about 25% of their LPs ask about it in the due diligence process.
- Gender-smart investing will contribute to a more efficient working world that is sustainable for both genders.
- While the opportunities are promising and intentions have been set, more needs to be done to provide investors with the right tools and frameworks to put gender-smart investing into practice and support inclusive value creation efforts.
- Moving the private equity industry towards gender-smart investing will require action from both GPs and LPs.
- If efforts are effectively put in in place now, fund managers will stay ahead of market trends and transform private equity – not only to support companies and economies, but to also reap the benefits of gender equality as a whole.
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