Despite Progress, Private Equity Still Has a Diversity Problem

Private market managers continue to lag behind corporate America and their public market peers on diversity and inclusion.

Jason Alden/Bloomberg

Jason Alden/Bloomberg

The U.S. private equity industry has some of the worst diversity numbers in the capital markets, and despite progress in recent years, it appears that it still has a long way to go.

In an article released Wednesday, McKinsey & Company partners Alexandra Nee and David Quigley evaluated the state of diversity in U.S. private equity two years after the murder of George Floyd, the subsequent civil rights protests, and the onset of the Covid-19 pandemic. While the McKinsey article shows that the industry has made some strides in its inclusivity, it’s clear that gender disparities and predominantly white workforces remain characteristic of the majority of PE firms.

Nee and Quigley used data from a 2021 McKinsey survey of 423 companies on the subject of women in the workplace. The authors also included responses from over 65,000 employees at 88 companies to a survey about their workplace experiences. The data related to the private equity industry, meanwhile, comes from an additional analysis of about 30,000 employees at 18 large- and medium-sized U.S. PE firms.

According to the McKinsey article, U.S. private equity firms have increased the percentage of ethnically diverse talent and female employees in certain roles. For example, based on data from McKinsey’s 2021 report on women, 20 percent of managing directors of PE firms were women of color, while only 19 percent of managing directors in corporate America identified as such. Private equity firms also beat corporate America’s diversity rates in entry-level, senior associate, vice president, and principle and directorship positions.

“Although PE matches all U.S. companies in POC [who hold managing director] or equivalent roles, parity is not overly impressive: In both sectors, only about 16 percent of men and roughly a fifth of women in such roles are POC,” Nee and Quigley wrote.


Furthermore, PE lags corporate America when it comes to ethnic diversity in the C-suite. Only 12 percent of PE C-suite positions were filled by women of color, compared with 18 percent in corporate America.

“We are in catch-up mode,” Katie Moore, managing director of fund investments at Hamilton Lane, a private equity investment management firm with an $851B private markets platform, told Institutional Investor. Moore said that the private markets are far behind their public market peers and corporate America largely because there was “less emphasis on [DEI initiatives] pre-pandemic,” she said.

In 2020, private equity made significant strides in gender diversity in junior-level roles. In 2020, 54 percent of junior-level roles at U.S. PE firms were held by women, compared with 45 percent in 2019. But this influx of diverse junior employees has done little to increase gender parity at more senior levels. According to the report, 44 percent of senior associate roles were held by women in 2020. At the managing director level, this number dropped to 20 percent.

“PE firms that aspire to improve gender diversity at the top may want to examine external hiring, retention, and promotion processes through to the MD level,” the authors wrote.

At KKR, one of the world’s largest alternative investment managers, 50 percent of the firm’s hires in the past year were women, Kerryann Benjamin, KKR’s chief diversity officer and head of talent development, told II in an e-mail. Benjamin said the number of senior women at the firm also increased this year. “We’ve planted the seeds to grow the pipeline of future leaders and remain steadfast in our commitment to DE&I as a strategic priority,” Benjamin said.

However, PE firms trail the rest of corporate America when it comes to women in C-suite positions. In 2020, 24 percent of C-suite positions in corporate America were held by women, while only 15 percent of such positions were held by women in PE. This disparity is reflected in the general industry sentiment among female investors. According to an October 2021 poll cited in the article, 54 percent of female investor respondents said they believe their career trajectory “is limited, or evaluation for promotion is somewhat slowed, due to [their] gender.”

“Private equity is now attracting more diverse candidate slates at the associate level, but the work needs to be done now to ensure that they will want to stay when they get to [the] VP level,” Sarah Maynard, global head of external diversity, equity, and inclusion at the CFA Institute, told II in an e-mail. “This takes sustained, incremental, intersectional work informed by a willingness to adapt the culture to include these individuals — not vice versa.”

Gender parity is drastically asymmetrical when it comes to promotions in the industry. In the past two years, men in PE were promoted at higher rates than women across all positions, except for C-suite roles, Nee and Quigley wrote. Today, one in five managing directors in both investing and non-investing roles at PE firms is a woman.

“The base is building,” Moore said. “The pandemic and many other things gave us a chance to reset the DEI conversation. There’s been a lot of energy and momentum and expectations that this will continue.”

Nee and Quigley note that institutional investors are now demanding that asset managers provide more robust and transparent diversity metrics about their firms and portfolios. Current firm-wide diversity statistics “tend to mask the disparity [of] deal teams,” Nee and Quigley wrote. Typically, they said there are greater rates of gender and ethnic diversity in the non-investing functions at PE firms.

“Diverse deal teams bring a broader set of relationships, perspectives, and experiences that can be crucial [when it comes] to relating to management teams and, ultimately, to closing deals. In an increasingly competitive industry, diversity is an edge that counts,” Nee and Quigley wrote.