The interlocking worlds of private equity (PE) and M&A tend to be very male, white, straight and middle class, not to mention cisgender. That is slowly beginning to change, with women at the forefront of moves to make the industry more diverse and inclusive.  

The industry is heading in the right direction, with a real push for more parity, particularly in investment teams, according to Aurore Gauffre, head of sustainability and impact at private investment platform CAPZA.  

However, there is a shallow pool of women qualified for senior positions, and those who do qualify are often reluctant to change firms, Gauffre said. On the other hand, investors in PE funds now expect sponsors to monitor the number of women on boards and in management throughout their portfolio companies, she added.  

It takes a long time for women to rise through the ranks, said Alexia Perouse, co-founder and managing director of iBionext, a health technology fund. It takes six to 10 years for women to rise to senior management positions, and even longer to break into a partnership that is largely or exclusively male, she said.  

Women will undoubtedly also find it challenging to build up a track record, which will include several successful investments and not just one, from deal sourcing to exit, Perouse said. And it is still necessary to make sure that senior partner's don't take credit as the role and involvement of women is often underestimated, she added. Perouse co-founded iBionext in a more egalitarian mode from the start and is making sure that her start-ups follow that guideline on their teams and boards, she added.

A recent survey from SS&C Intralinks, with Mergermarket and Bayes Business School, looked at data from more than 11,000 M&A deals announced between 2010 and 2022. If found just 318 deals (3%) were initiated by bidders with female CEOs, while 1,237 deals (11%) were initiated by boards with at least 30% female representation.  

Despite the relatively low percentage of deals, the research showed that deals completed by acquirers with female CEOs tended to perform better, as did deals with strong female board representation.  

This ties in with older research published by Harvard Business Review (HBR) in 2018. It showed that only around 8% of investors from venture capital (VC) firms were women in the previous 28 years. However, it showed that women punch above their weight: VCs that hired 10% more female partners tended to show a 1.5% spike in fund returns each year combined with 9.7% more profitable exits.  

Wanting to hire more women and actually hiring them are two different matters. It has proven very difficult to find women to hire, according to Celia Hart, general partner at VC Supernova Invest. The firm is also trying to coach young entrepreneurs who want to enter the professional world, many of whom are particularly attentive to the topic of diversity, she said.  

However, the scarcity of women could be changing. In a survey of 600 global dealmakers from April, Datasite found that males from generation X (born 1965-1980) and baby boomers (born 1946-1964) currently dominate senior roles in the M&A industry. The survey also found that 71% of dealmakers from the millennial generation (born between 1981-1996) were female. The numbers are growing for generation Z (born between 1997-2012).  

Next steps

The Datasite survey also showed that diversity is very important to two-thirds of dealmakers, although 20% feel scared of taking the first step to improving the situation. “We need to do more to ensure leaders and organizations are supporting educational efforts on why inclusivity is important and how to be an ally,” said the virtual data room provider’s CEO Rusty Wiley.  

A leader who wants a more diverse organization should begin by expanding their personal relationships, said CJ Gross, founder of Ascension Worldwide, a Washington DC-based diversity, equity and inclusion consultancy. They should look for groups that represent communities like people of colour, LGBTQ or women and try to expand their personal network, he added.  

It is important to recognize that it can be uncomfortable, frightening or intimidating to be a minority of one in a new setting, Gross said. The way to make it work is to seek out ambassadors who can introduce the leader to other members of the community, he said.

Once an organization makes a diverse hire, it needs to recognize that the person might feel detached from the rest of the team, Gross said. It is important to make new hires feel comfortable so they can perform well, he said, adding that a feeling of belonging is the key.  

Bain is an example of a firm that takes making minorities feel comfortable very seriously. It set up an LGBT network called BGLAD almost two decades ago, which allows gay, lesbian, bisexual and transgender colleagues to support each other while choosing to what extent they want to be “out” to all colleagues.  

One of the most complex areas for leaders who want to take diversity seriously is the complex interplay between what the HBR calls “endowed traits” (gender and ethnicity) and “acquired traits” (education and work experience).  

Investment banks seek to apply objective criteria to the selection of candidates, but the recruitment process permits plenty of room for informality when it comes to the final decision, said Damián Rubianes, adjunct professor of finance at IE Business School and former investment banker.  

For example, hiring managers have a tendency to recruit for familiarity and similarity, Rubianes said. “Recruiters call this ‘fit,’ but it could also be described as ‘affinity bias’ or ‘homogeneous background’. Cultural capital – including implicit knowledge, specific behaviours, speech patterns and dress codes – can be key factors for people trying to get a foot in the door.”  

The bias towards cultural capital means that candidates from less privileged backgrounds should be seen as just another minority in the industry, Rubianes said. In finance, having parents who know how the game is played can be an advantage, agreed Gary Stewart, CEO of FounderTribes, who added that social class and geography are important factors in diversity.

A leader who wants to make a change should have a look at how the system is set up, Stewart said, adding that they should think about how networks can become self-reinforcing. They should think about how to open the door to people from different backgrounds, he said.  

FounderTribes is aimed at opening up closed networks in the startup world. A community of founders give feedback on pitches. Once pitches hit a certain level, founders get introductions to funding sources. Algorithms can then help founders build support networks.

Meanwhile, several law firms, including Lathams & Watkins and Schulte Roth & Zabel, provide support groups to first-generation professionals (FGPs), who are the first in their families to go to university. Latham & Watkins says its FGP group supports diverse recruiting, as well as mentoring and training programs, networking opportunities and social events.

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