What is the #1 reason institutions invest in private equity? For strong uncorrelated returns, of course.
I’ve been thinking about this recently, and how this intersects with another topical conversation in March, namely all the events and resources surrounding International Women’s Day earlier this week and Women’s History Month in general.While we certainly have more progress to make in terms of diversity and inclusion, there is some good news that I think is important to share — and that can also help us all make better and smarter investment decisions. And so, I could not think of a better time to step in and author, for the first time, one of our Palico Key Trends Report.
As background, while gradual progress has been made, the brutal truth is that private equity continues to be a male-dominated domain. It has been estimated that only one in ten senior decision making roles in the PE world are held by women globally, and approximately 3% of capital invested in the industry goes towards women-led firms.
This needs to change, because increasing gender diversity in PE is actually improving financial returns. Consider a recent report from Bain, which demonstrates that diverse teams make better investments, both increasing upside potential and reducing downside risk. Specifically, this research found that investments with women-led deals outperformed investments exclusively led by men by a massive 12 percentage points on an IRR basis and by 0.52x in terms of a gross multiple of invested capital (MOIC). Equally importantly, these mixed teams had failure rates (defined as a gross MOIC below 1) 8 percentage points lower than teams led by men. This is a significant performance impact.
Good Growth Capital is an early-stage venture capital firm known for its expertise in finding, cultivating and assessing complex science and technology start-ups. They believe that their own diversity (Good Growth is majority women-owned) provides a competitive advantage in sourcing from a deeper and wider pool of potential investments.
Good Growth is not alone. New names have been joining the ranks of a growing list of firms on both sides of the Atlantic seeking to address the female venture financing gap. Just google “women-led VC firms” to see what I mean.
I also wanted to highlight a few organizations and associated events for you to add to your toolkit. Here are just a few:
- The ILPA Diversity in Action initiative advancing diversity, equity and inclusion. The goal is to motivate market participants to engage in the journey towards the adoption of specific actions that advance DEI over time.
- Women's Association of Venture and Equity (WAVE) is committed to the development of women with a series of developmental and networking events, plus an annual career and recruiting forum.
- Level 20 is dedicated to improving gender diversity, and is sponsored by firms like Advent International, Bain Capital, Bridgepoint, CVC, HgCapital, Livingbridge, KKR and TDR.
- The Women’s Private Equity Summit is an event for senior-level women. GPs, LPs, and advisors attend to network, initiate deals, and forge new relationships.
- The PEI Women in Private Equity Forum strives to drive forward diversity. Bringing together institutional investors and fund managers, the event provides a platform for men and women of all levels to build their network.
- The BVCA Women in Private Equity & Venture Capital Series offer opportunities for access to the UK's top practitioners and advisers, and a platform for candid discussion about improving gender diversity.
Whether you are an LP or GP, female or male, these resources can help you to develop your network of manager and investor relationships as the industry evolves towards a more equitable gender balance.
Perhaps more importantly than anything, the bottom line for investors is that they should actively be seeking diversity within their PE portfolios as a means for achieving high uncorrelated returns – the very reason for investing into private equity in the first place.
Claire Commons, Head of Strategy
The content on this article is provided for general information purposes only and does not constitute legal or other professional advice.
Palico is the leading digital marketplace for private equity primaries and secondaries specifically designed for fund managers and institutional investors.
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