Private equity’s long road to diversity

McKinsey's 2023 report found a continuing yawning gap for gender parity in senior investment roles and uneven progress for ethnic and racial minorities.

Under the watchful eye of LPs, many private equity GPs have been working hard to bring more diversity, equity and inclusion into their ranks and organizational cultures.

But it looks like more work on the DE&I front lies ahead.

That was the finding of McKinsey & Company’s The State of Diversity in Global Private Markets: 2023, released this week. While noting signs of progress – for example, an uptick in diversity on investment committees and growth in the reporting of diversity metrics – it still sees big gaps.

The gap is particularly yawning for gender parity in senior investment roles. There is also uneven progress for ethnic and racial minorities across roles and regions as well as types of firms.

In the case of gender parity, private equity has racked up gains at the entry level, with 48 percent of all such roles held by women at the end of 2022, the report said. On the other hand, their presence in top leadership continues to lag.

Globally, the share of C-suite roles held by women stood at 17 percent at the end of 2022, up 3.5 percentage points from a year earlier, the report said. Low representation at the managing-director level, however, remained constant.

At the current rate of progress, McKinsey said, it will be “several decades” before the private equity industry gets to gender parity at the principal and managing-director levels. More than 60 years, to be exact, with respect to the most senior jobs.

Interestingly, McKinsey makes a distinction between GPs on their DE&I track records – expressed as the significant difference between ‘leaders’, which are making strides in the diversity of their talent pools, and ‘laggards’, which are not.

Advent International is among those making a concerted effort to advance DE&I objectives, using a range of tools – including robust recruitment – managing partner John Maldonado told Buyouts in an interview earlier this year.

When it comes to DE&I, Maldonado said, “you have to put a bullseye on what you’re trying to solve for.”

“It really starts with the tone at the top – because if senior leadership doesn’t buy into what the intent is, why we’re doing it, what we’re solving for, you don’t have an organization that’s going to do the right things.”

For this reason, diversity is the “first agenda topic” of every Advent executive committee meeting, he added.

“We’re measuring diversity at every level of the firm, in every region, and establishing long-term goals for achieving either more gender diversity or more ethnic diversity. And we are holding ourselves accountable.”

While Advent recognizes it cannot “change the composition of the firm overnight,” Maldonado said, “we’re very proud of the trajectory that we’ve been on.”

Advent reports 49 percent of its employees today are women, as are 28 percent of global investment professionals. In addition, of year-to-date hires, 59 percent are women, with the same percentage applying to hires in the North American deal team.