The private equity industry, with a global reach, has a powerful source of financing with lots of dry powder. They contribute to tax revenues, better services, the country’s economy, and generate jobs. Despite its popularity across the globe, private equity firms have underrepresented women in senior positions.

Only 11 percent of the senior investment partners are women. Also, less capital is invested in women-led companies. This is happening amid the fact that gender-smart investment strategies help to build competency, improve human capital, and build a business environment.

Morgan Stanley, in its new report, Transparency 2021: Addressing Gaps in Equity Compensation reveals that inequity at private equity firms persist despite the focus and efforts to curb it. 41% of women reportedly participated as against 52% of male counterparts in equity compensation plans. It also reported that only 25% of working mothers were granted equity as against 60% of working fathers.

Private equity or venture capital forms an important source of capital to catalyze business growth though their strength is less than 5 percent of global assets under management. Catherine Leung, Co-founder, and General Partner, Mizmaa Ventures says that senior leaders should improve gender diversity wholeheartedly and believe in it.

As per International Finance Corporations research,

•65% of institutional investors consider the importance of gender diversity when investing in private equity funds, while 25% question gender diversity in due diligence.
•Female partners invested 2x more as than their male counterparts.
•In private equity jobs, only 15% are gender-balanced and gender-balanced teams showed 20% higher net IRR.
•In portfolio companies, 20% of leadership roles are gender-balanced with a higher valuation.
•Gender balanced teams possess 30% to 70% of women in leadership roles.

Further, COVID-19 has had a harder toll on women’s careers in general due to the operational segregation of the labor market. Serious intervention is needed to address gender inequality as we reach the post-pandemic phase. Private equity jobs should ensure equity, diversity, and inclusion too. A fairer distribution is essential and should be encouraged.

Here are some of the steps a firm can take to improve gender diversity.

Actions PE firms should take to improve gender diversity

Creating a culture that values gender diversity should be the first step to see the benefits. Here are some of the actions a firm can take in this regard.

Maintain transparency while conducting candid assessments of firms’ gender diversity

Any change will be credible only when the senior leaders acknowledge honestly about the gaps and get committed to change the status quo. A combination of candid assessments with commitment right from the top positions can only improve the situation.

Set long-term goals and communicate. Demonstrate commitment

Gender makeup cannot happen overnight, but it should happen soon. So, the goals should be timebound and specific. There should be a vision of what the firm seeks to achieve and by when. Sample goals for a period of 3-5 years would be a good start. It could include:

•Making a gender mix of new hires to 50%
•Improving retention rates in case of women
•Promoting women equally throughout the pyramid
•Having women in senior leaders’ position
•And so forth

Planning things against a determined period of time and making efforts to achieve them would help the firm to reach the goal as planned. Gender-based targets can include interview invitations, specified offers for a position (say Associates- 2 female and 2 male, balancing gender wage gap, etc.

Learn from failures and success

Assess the root cause of failures or success when a target is not met or met. It could be gender unconscious bias in hiring, promoting, or sponsoring. Share a transparent record and follow the progress. This clearly emphasizes the gaps and thus firms can work on them easily.
To conclude, private equity leaders should serve as an example by addressing the challenges, closing the gaps, and measuring progress toward gender equality.