The discourse on diversity, equity, and inclusion (DEI), despite heading into America’s Trump 2.0 era, has broadened to encompass ideas beyond gender among institutional investors, panellists said at this week’s AVCJ Private Equity Forum 2024 in Hong Kong.

Despite the DEI backlash in America’s anti-woke corners, the awareness among LPs and GPs of DEI isn’t going away, they said. Moreover, the concept of diversity has evolved to ensure that not only women, but all ages, ethnicities, and sexualities are being professionally represented.

Speaking at the Forum’s ESG Summit, the panellists said that organisations are also being required to manage a behavioural shift as employees readjust to work patterns post-pandemic and younger generations enter the workforce.

Lydia Hao, managing director at Harbourvest Partners, said her firm has begun exploring neurodiversity this year. “It boils down to how staff could think differently because your brains are wired differently,” she said. With Gen Z participating in the workforce today, managers need to be open-minded about differences in the way teams work.

Yuka Hata, senior managing director, head of fund investments at Japan Investment Corporation (JIC), said her firm encourages Gen Z staff to work from the office by creating spaces filled with relaxing sounds.

Wellness and ensuring work-life balance, particularly for working parents, also need to be supported as part of the DEI agenda, Wendy Zhu, partner and managing director at AlpInvest Partners.

Programmes designed to coach and support new mothers and fathers on parental leave are important in ensuring retention, said Pamela Fung, managing director at Morgan Stanley Investment Management. “The reason I’ve been at Morgan Stanley for so long, 13 years, is because I feel like there is support within the firm.”

The panellists agreed that the importance of ensuring diversity across genders remains. Women in private equity represent just 20% in managing-director roles, according to McKinsey & Co’s 2023 diversity report.

“When we look at Asia, some of its emerging markets don’t have enough recognition around the importance of having women in leadership. That’s why we try to raise this point in those markets,” Nana Li, head of sustainability & stewardship, Asia-Pacific at Impax Asset Management.

Ultimately, the objective is about finding a balance when establishing gender-diverse teams, said Harbourvest’s Hao. The IFC estimates that gender-balanced funds are estimated to outperform funds majority run by males or females by up to 20%.

Japan breaks new ground

Japan has joined the DEI party, making headway with several top-down initiatives. In April 2023, Prime Minister Fumio Kishida publicly urged companies listed on the Tokyo Stock Exchange’s top-tier Prime Market to fill at least 30% of executive positions with women by 2030. The government mandated the policy in June 2023, adding that companies should start by appointing at least one female board member by 2025.

Impax Asset Management’s Li described the new policy as significant and a “big leap forward”, considering that other Asian markets, such as India and Hong Kong, already have mandatory gender quotas in place.

In a December 2023 interview, JIC CEO Keisuke Yokoo discussed unconscious bias surrounding women in private equity, as well as his initial shock in finding that outside Japan, women constitute 40% of presidents and chairpersons.

“It made me realize that Japan was an exceptional case,” Yokoo said. With a male-dominated fund industry, it made sense to start diversity conversations around female empowerment.

At the beginning of this year, JIC established a committee to promote DEI within management. The government-backed LP is also incorporating DEI into its code of conduct and GP investee dialogue.

JIC seeks to require its investee managers to set ethical codes of conduct and no-harassment policies, including protection against sexual harassment, said JIC’s Hata at the ESG Summit.

Fundraising & investing

Initiatives around DEI may in fact stand to benefit from a tough fundraising environment, the panellists said. Harbourvest’s Hao highlighted New York-based Coalesce Capital, a female-led debut manager which raised more than USD 900m earlier this year.

Amid prolonged fundraising periods, LPs can use the opportunity to converse with GPs on their DEI and ESG reporting of historical metrics, said Hao. LPs and GPs can work together on designing tracking metrics going forward as well, she said.

“It’s about trying to exert influence on GPs which can then be magnified among portfolio companies. You’re talking about hundreds and thousands of people who could be impacted by these policies,” said AlpInvest’s Zhu. She pointed to Carlyle in China which has signed up CEOs of its portfolio companies to such initiatives.

The investment potential is also far-reaching. A report by BNY Mellon and the UN Foundation predicts that gender lens investing could unlock USD 12trn through female-targeted products and services.

However, the reality is that the quantum of female-led funds and women-empowered businesses is yet to see a significant shift, said Hao. The McKinsey & Co report predicts it will take 62 years to reach gender parity in investing roles at managing-director levels globally.

“For one to have a lasting impact in terms of a cultural shift – that won’t be a one- or two-year change. I’m sure next year, at this panel, we’ll be talking about the same topics,” Hao said.

That only means one thing – DEI isn’t going anywhere.