Risk & Economy » Diversity » Women a true asset for private equity deals, and the data shows it

Women a true asset for private equity deals, and the data shows it

Gender diversity in the investment sector makes sound financial sense, says Professor Oliver Gottschalg of business school HEC Paris.

Many people believe that an equal representation of both sexes in senior positions is “the right thing to do” for pure gender diversity matters. However, what if you could add ammunition to the moral argument with raw data proving that women are key contributors to successful deals in the private equity sector?

This summer I did just that by presenting the results of a study I led between HEC Paris and MVision Private Equity Investors to an audience in New York. Also present was Sheryl Schwartz from The Board of Directors of the Women’s Association of Venture and Equity (WAVE), who suggested the findings would have a major impact because they made it unfathomable why you wouldn’t aim to diversity.

She said that we finally had “proof that diversity gives a competitive and a performance advantage,” going on to sum the research up as “quantitative evidence that gender diversity in investing will lead to better decision-making and lower ratio loss.”

While today only 10.8% of deals in private equity are led by female investment managers, we now know that gender diversity increases investment performance. So just imagine the gain to be made from encouraging women into the fold.

Deals in which the female point-of-view is represented in the investment committee perform significantly better than deals brought about by all-male committees.

In addition, in the former cases, the failure rates are lower and the focus when choosing investment targets is slightly different.

Applying the data to the wider world

Whilst the research focuses on gender parity in the private equity sector, the findings can be applied with broader strokes. There are implications for decision-making bodies, and especially those in the investment arena. And beyond gender issues, diversity as a whole — be it in terms of ethnicity, professional background or degree of experience — only enhances efficiency in deals.

This is not the first research of its kind but it is unique in its use of empirical data and key performance information, which was shared in confidence by funders in the private equity field.

Lamentably, there are still too few women in senior finance positions. Partly this is due to a thinner crop of women coming out of business schools, but it is also down to private equity’s notorious reputation for having long working hours and an intense, competitive environment.

The general understanding is that fewer women than men want to sacrifice their work/life balance. Given that part of the nature of success in private equity is making it to the top (partner level), it becomes clear why women are under-represented. Indeed, currently only 9% of senior positions in private equity are held by women and the trend has showed no signs of bucking for 20 years.

Facilitating women’s path

Mechanisms need to be put in place to make jobs more compatible with what women want so that a steady flow of qualified women can be channeled into private equity. Going back to the college level to educate women on how they in turn can equip themselves for the sector is an important part of this work.

Private equity is not alone in being a male-dominated industry. The entire finance industry carries a reputation for poor levels of gender diversity on its shoulders.

Outing these findings will hopefully be an important step towards changing the current culture, in the name of making private equity more appealing for women, who would clearly be anything but a liability for such firms. However, there is still something of a sticking point because individuals who have had to overcome obstacles (“streetwise” characters we might call them) add extra value to investment committees. And so, women’s plight to get to the top can pay off for the firm, although not for women’s wellbeing.

A streetwise character does not have to be a woman, but the fact that women tend to have to fight their way to the top against the odds does mean that they end up being twice as tough and smart as men.

So, what should men do? Cower in the corner in fear? Of course not. In fact, every single career chance given to women as observed in our research was provided by men. Men need to be aware of this fact, and of the overall findings.

Whilst women-only networking organizations still occupy an important place, now is the time for men to be integrated into the debate; not as a token gesture but as a matter of financial logic.

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