Private equity firms made a moderate amount of progress last year when it came to promoting diversity, inclusion, and equity, But more work still lies ahead.
According to McKinsey’s latest DEI report on private equity, women made up 17 percent of executive roles across global firms as of the end of 2022, a 3.5 percent increase over the previous year. The consultant also found that 18 percent of investment committee roles at PE firms were held by ethnic and racial minorities in 2022, up from 9 percent in 2021.
Over the past few years, institutional investors have asked PE firms to disclose more comprehensive DEI data during the fundraising process, according to the report. Between 2016 and 2018, 47 percent of PE firms were asked to provide DEI data covering both their investment teams and portfolio companies. That number rose to 52 percent between 2019 and 2021.
“Institutional investors are broadening their view of DEI beyond the investment team, and institutional investors now increasingly ask about DEI metrics within portfolio companies and their boards,” according to the report. “This growing interest from institutional investors has encouraged PE firms to systematically track and report on these metrics, fueling momentum toward diversity and inclusion in the industry.”
Despite the progress, PE firms are still far from achieving diversity goals. At each job level, women are far less represented in core investing roles than they are in operating and other non-investing roles, according to the report. For example, at the entry level, women hold only 33 percent of investing roles, compared to 44 percent of operating roles and 59 percent of other non-investing roles.
“At almost every level, women in investing roles are promoted at significantly lower rates than men,” the report said. “Globally, men in investing roles are about 50 percent more likely, on average, to be promoted than their female colleagues, a trend that persists across all levels in investing roles.”
The report also found a wide gap in diversity progress between the leaders and laggards. The top 10 percent of PE firms ranked on diversity have 38 percent of investment professionals who identify as ethnic or racial minorities. In contrast, only 22 percent of investment professionals at the bottom 10 percent of PE firms identify as ethnic or racial minorities. Firms leading in gender diversity have 38 percent of all workers who identify as women, a sharp contrast to the 16 percent found at firms trailing in this area.
Black and Hispanic professionals are especially underrepresented in the PE industry. While Blacks and Hispanics constitute 14 percent and 19 percent of the U.S. population, respectively, they only accounted for 8 percent and 9 percent of managing director roles as of the end of the 2022 — even at the leading firms.
“Firms that lead the industry in ethnic and racial diversity have demonstrated that significant progress is possible, but there is still work to be done to make PE offices in the United States and Canada more representative,” according to the report.
