PE Firms Are Making Diversity Efforts, But It Will Likely Be a Long Road

Private equity leaders like Carlyle, TPG, and Blackstone have begun to make DEI a priority.

Chris Ratcliffe/Bloomberg

Chris Ratcliffe/Bloomberg

One of the least diverse industries in finance appears to be putting some real muscle behind its promises of more diversity, equity, and inclusion.

Compared to other sectors in finance, private equity firms have lagged when it comes to hiring and retaining a diverse pool of talent. For example, according to a recent Ernst & Young report, women have filled roughly half of the entry-level positions in finance, but they still account for only a third of the hires for such positions in private equity firms. The gender gap appears to be even more acute among management teams, where women account for only 10 percent of senior roles in PE and 20 percent of executive roles in the broader world of finance.

The story is much the same when it comes to racial and ethnic diversity. According to the same EY report, only 3 percent of employees in the PE industry are Black, compared with 12 percent at banks. Among the portfolio companies backed by the top 18 PE firms and venture capitalists, only 2 percent of board seats are held by Black and Latino directors.

According to EY’s lead PE analyst Pete Witte, some industry leaders such as Carlyle, Blackstone, TPG, and Apollo Global Management — firms that must compete for talent with banks and even large tech firms — have responded by implementing DEI initiatives. “There was a very well-defined pipeline,” Witte told Institutional Investor. “You might spend a couple years at an investment bank, and [then] you would move into an associate role at a private equity firm. [But now] that pathway is becoming a little less defined.”

Since 2020, for example, Carlyle has required recruiters to interview at least one candidate who is Black, Latino, Pacific Islander or Native American for every new role. TPG filled half of its recent associate classes with women or non-white candidates. Blackstone also announced initiatives designed to increase to one-third the diverse representation of the board seats in its portfolio companies.


Kim Case, EY’s PE People Advisory Services Leader, said that private equity firms have also realized that diversity efforts shouldn’t stop at recruiting. The traditional PE culture, according to the EY report, could impede DEI because it relies too much on a “success prototype.” It is highly driven by returns, believes in meritocracy, and features an exclusive work environment that scares away many underrepresented minorities. “After we get [minorities] in the door, it’s important that the culture is one that encourages diversity, makes people feel as though they are working in an inclusive environment, and creates that sense of belonging,” Case said.

Although the industry leaders are actively making changes, the EY report makes it clear that it will likely take a long time until their DEI efforts bear fruit. The consulting firm simulated the number of years needed to reach the goal of 40 percent female employees given a retention rate of 80 percent, and it found that it would take 6 years if half of the new hires were women. If the retention rate were to drop to 30 percent and the proportion of female new hires remained below 70 percent, the company would never reach the goal. Thus, PE firms “must succeed on two fronts” — recruitment and retention — to achieve their diversity targets.

“It will be increasingly difficult for firms that do not address [diversity] to be competitive, and it’s not something that’s going to happen overnight,” Witte said. He added that private equity firms will face pressure from LPs such as family offices and entrepreneurs, which have been more attracted to GPs sharing the same DEI values.

“Businesses need to be able to innovate, grow, thrive, and adapt to what’s happening in the external marketplace,” Case said. “[From a] smart investment sense, [PE firms] will continue go down the path of DEI.”