Mention diversity to most people in the investment community, and more often than not it will result in a discussion on asset allocations. Much like Wall Street, the private equity market has historically been a homogeneous block, dominated by white males with an Ivy League DNA. It’s not that the industry hasn’t tried to address the need for diversification, but given the “patient” nature of PE investing, it is taking longer than one might expect.
Unlike other areas in finance, private equity funds are built almost exclusively on personal relationships and mentoring, which means those without such a relationship may have a tough time entering this market. And even when someone gets their foot in the door, it generally takes between five and seven years for a junior associate to become a senior associate, and it can take even longer while pros await turnover at the very top of a fund.
“There’s nothing necessarily sinister behind it. It’s just how the industry has evolved so far, and it’s still a very young industry,” Hispania Capital Partners Founder Carlos Signoret tells Buyouts. “You have to realize that this space started with just a few groups and grew with offshoots of those funds. You need experience to start a fund, so the makeup of the industry reflects the backgrounds and relationships of those first groups.”
However, Signoret and others are starting to see that gradually change, and as more women and ethnic minorities continue to gain positions, that helps open the door for others.
Vanessa Bailey, the founder of executive search firm Cressida Partners, says, “It’s a little late, but I’m certainly starting to see a change. I think it’s partly a deliberate effort by firms and partly a natural evolution, but in the searches I run today, I come across an incredibly diverse group of candidates. I couldn’t say that five years ago.”
That said, it can still be difficult operating in an industry dominated by a race or sex other than your own. One pro cites, “Personally, I’ve found that private equity has historically been one of the last bastions of the Old Boys’ club… And it’s not just women or [ethnic minorities]. If you don’t have the right pedigree-meaning you didn’t go to Harvard or don’t play golf -then it’s just not easy to get into the industry.”
Tarrus Richardson, a managing director at ICV Capital Partners, says, “On an absolute basis there are more minorities and women in private equity than five years ago, but on a percentage basis it’s probably the same or even lower because the number of industry professionals has expanded so much.”
He further describes that the number of ethnic minorities or women that know about and pursue private equity as a career is limited. Richardson says, “Today there are approximately 250 to 300 ethnic minorities that have been lucky to find their way into the industry. Most stay and do extremely well. However, it’s up to all of us-particularly the LPs and the larger buyout shops-to expose and hire more diverse candidates into this space.”
There are currently a number of organizations set up to help spur diversity in this market. The Ewing Marion Kauffman Foundation, The New America Alliance, the Robert Toigo Foundation, the National Association of Investment Companies (NAIC) and the National Council of Women’s Organizations, are just a few of the organizations designed to help diversify financial services.
Richardson, who was a Toigo Fellow and rose through the ranks as an active alum, notes: “At Toigo, it was all about mentorship. It allowed me to connect with a someone in the industry, and that allowed me to ask the dumb questions and really gave me a lay of the land. On top of that, the network at Toigo provided a ready-made rolodex of private equity firms involved with the foundation. Had it not been for that I wouldn’t have had the access to meet firms such as Freeman Spogli [& Co.], Welsh Carson [Anderson & Stowe], or JLL [Joseph Littlejohn & Levy] and others.”
While it may not be apparent at industry conferences, the space has made strides in the past ten years. There are a number of shops with either women or minorities at the helm, including groups such as Solera Capital, 21st Century Group, Broadcast Capital, Meridian Management Group, Prometheus V, Provender Capital Group, Weston Presidio, and The Yucaipa Cos., among others.
Creating a diverse workforce also gives groups the ability to look at things in a different perspective. If PE groups want to capitalize on the growing Hispanic demographics or make a play in woman’s retail, it can only help to have someone on board that knows the market intimately. “Just as you would do if you’re investing in China or India, it makes sense to invest in or partner with managers that have a greater knowledge of the market if you want to participate in the ethnic minority marketplace here in the U.S.,” Richardson says.
And as more money targets these growing demographics (see story, pg. 25), it’s not unlikely that it will go to the firms that have made an effort to create a diverse work environment.
Nobody is expecting the makeup of the workforce to change overnight. Gwyneth Ketterer a senior managing director and chief operating officer at Bear Stearns notes, “The nature of our business is such that being an apprentice is critical to gaining the experience to move forward. This isn’t a very old business, and there hasn’t been as many women or minorities that have yet risen to the ranks where we can be mentors ourselves, but once that happens we’ll be able to cultivate others and that will help get the ball rolling.”