By Caitriona Palmer, IFC Communications
With more than $3 trillion in assets under management—nearly $800 billion of which is allocated to emerging markets—private equity can be a powerful source of financing, especially for innovative businesses that cannot access bank loans or capital markets. Investors and funds with stakes in these privately owned companies not only help them expand, they also contribute to generating jobs, tax revenues, and better services.
Despite this industry’s global reach, women remain woefully underrepresented among the investment decision-makers at private equity and venture capital firms, as well as in the leadership of companies that receive this investment capital. Women make up just 11 percent of senior investment partners in private equity and venture capital in emerging markets. Less than 7 percent of this capital is invested in women-led companies.
A new IFC report makes a compelling business case for gender diversity at private equity firms in emerging markets. In collaboration with investment firm RockCreek and consulting firm Oliver Wyman, IFC analyzed more than 8,000 firms and found that gender balance has a significant impact on financial performance.
Private equity firms at which women comprise at least 30 percent of the investment decision-making team achieved 10 to 20 percent higher rates of return than those in which women were not well represented. Also, when women are underrepresented in the private equity industry, female entrepreneurs have a harder time accessing capital. The report found that female investment partners invested in almost twice as many female-led businesses than male investment partners.
At the portfolio level, companies with gender-diverse leadership achieved increases in valuation that were 20 to 30 percent higher than those which lacked gender parity.
So what can private equity firms do to avoid missed opportunities in the market?
Change starts at the top. Two-thirds of investors surveyed view improving gender diversity as a priority, but less than half have strategies for achieving it. Setting goals and collecting data to assess progress is a first step toward demonstrating commitment.
Supporting an internal environment that does not force women to choose between family and career is also important to attracting and retaining women employees in private equity firms. Nearly a quarter of private equity firms do not provide maternity leave and more than half do not offer paternity leave. Private equity and venture capital firms can provide and support equal maternity and paternity leave benefits and support flexible arrangements for professionals managing work and family commitments.
To learn more about the research and recommendations, read the report at www.ifc.org/equality4equity .
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Published in March 2019