12 June 2019
The rise of Private Markets as an attractive investment for LPs in recent years has coincided with the increasing acceptance that diversity within organisations is essential for commercial success.
Growing regulatory pressures and acceptance of the need for greater diversity of thinking and background in investment teams is leading LPs themselves to challenge fund managers to ensure diversity within their organisations is a key strategic priority.
Whilst investor appetite for private market products remains strong, it is likely that developing strong alternatives capabilities will continue to be a key focus for asset managers. Ensuring diversity at all levels of the organisation however is a challenge facing all firms and one that needs to be realised to achieve success. Particularly as the aspirations of LPs to partner with firms who take a more “enlightened” approach to such issues will only become more prevalent in their capital allocation decisions.
Whilst performance, risk management and access to top talent will always be key differentiators for alpha generation, clients are now also seeking to partner with organisations that more accurately represent the societies in which they operate and fundamentally serve. The increasing number of investors who request a firm’s diversity and inclusion data as part of their due diligence process will only add to the urgency with which managers need to address diversity.
According to KPMG’s Women in Alternative Investments report, 75% of investors surveyed plan to challenge investment firms on their gender diversity this year – increasing from 60% the previous year.
Recent reports have also shown that investors are not just making inquiries about diversity but considering it with such weight that it will impact to which firms they allocate capital. For example, recent reports suggest that the Chicago Teacher’s Pension Fund did not allocate a $50 Million commitment to two global managers, citing a key reason for this decision being a lack of diversity in the managers’ investment teams.
Investors place this weight on diversity for varying reasons. Some refer to their acknowledgment that gender diversity leads to better performance through enabling diverse viewpoints. Whereas other investors refer to their preference for working with investment firms who have a corporate culture that is supportive of diversity.
The Current Gender Diversity Landscape
Research led by KPMG that involves hedge fund, private equity and real estate managers along with European institutional investors found that only 39% of those in marketing and investor relations roles are women. This is the highest across all functions with the numbers notably lower for investment and asset management functions (20%) and an even more limited number of female chief executives at alternative investment firms (13%) showing insufficient progress across all functions.
There is progress being made within some asset classes. For example, AMC recently conducted our own research that showed the number of women in senior fundraising and investor relations positions within European based Infrastructure Equity funds is 52%, a number reflected across all levels of the function with 46% of all European infrastructure fundraising professionals being female. However, overall progress in the industry is lacking and unsustainable.
How to Change – A Diverse Recruiting Strategy for Private Markets Clients
Through partnering with clients on issues surrounding diversity and inclusion as well as a number of organisations looking to promote careers in financial services to future diverse candidates, AMC are actively taking part in building the diverse organisations of the future. We have challenged ourselves with regards to our search process to ensure diversity is an integral pillar for success.
In 2018, 50% of the searches we conducted resulted in a female candidate being appointed into the role at an average total compensation level of £330,000 per hire.
For diversity to be impactful at an investment firm, it needs to be viewed as a priority at board level. When the CEO of a firm makes an explicit commitment to creating high performing and diverse fundraising and investment teams, change follows quickly.
We partner with our clients in the following ways:
Our commitment to industry-leading standards of diverse recruitment is reflected in AMC being a signatory of the Government’s Voluntary Code of Conduct for Executive Search Firms and the HM Treasury's Women in Finance Charter. This, along with partnering with a number of social enterprises focused on ensuring all individuals have the support and information needed to enter the profession allows us to be central to the conversations and actions required to make a lasting impact on diversity within financial services.
Diversity as a concept should ultimately become redundant as investment firms make the changes to their recruitment processes that lead to it being viewed as a core part of corporate growth. In the meantime, taking proactive steps to ensure a broad set of skills and experiences within any fundraising or investment team is becoming a business-critical action that CEOs and boards of such firms need to take.
The key message is that investors are not only aware of the importance of diversity and inclusion, but value it to the extent that they will hold managers to account should they consider their progress in this area inadequate. Considering reports indicate that investors have capacity to allocate more capital to private markets, ensuring diversity across all functions within managers is even more critical to AuM growth than before.