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Home > Financial Services > Private equity firms pledge their support for Diversity in Action initiative

Private equity firms pledge their support for Diversity in Action initiative

Dec. 16, 2020 by Anthony DeCandido and Nelly Montoya

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As investors demand greater accountability on diversity and inclusion efforts in the asset management industry, private equity firms are under pressure to change. Women in the alternative assets sector, for example, held only 11.9% of senior roles, according to a Preqin study released in February.

As investors demand greater accountability on diversity and inclusion, private equity firms are under pressure to change.

Now, a recent initiative seeks to address that disparity – by bringing together limited partners and general partners who share a commitment to advancing diversity, equity and inclusion in the private equity industry. But how much of this reaches the middle market will be a question.

It’s called the the Diversity in Action initiative, and was recently launched by the Institutional Limited Partners Association.

Under the initiative, investors commit to advancing diversity and inclusion, both within their organizations and within the industry more broadly. Those signing on promise to take four important actions:

  • Implement and communicate a diversity and inclusion strategy
  • Monitor hiring and promotions by gender and race
  • Align goals to recruit and retain an inclusive workforce
  • Share demographic data with limited and general partners when raising capital

In addition, the initiative requires at least two additional actions from a larger list of nine that spans topics like talent management, investment management and industry engagement.

About 50 firms pledged their support of the initiative, including familiar names like KKR, the Carlyle Group and Apollo Global Management. But only 20% of those signing the initiative were middle market firms, or funds with less than $5 billion in assets under management.

Middle market firms

Middle market firms have been playing catchup. In a special report of the proprietary RSM US Middle Market Business Index published in May 2020, 53% of middle market executives surveyed by RSM in the fourth quarter of 2019 said that they had a somewhat or highly formalized focus on employee diversity and inclusion in the workplace.

Since the survey was taken, though, social unrest has put a spotlight on the issue, and we expect these numbers to grow. Research shows that there are benefits when an organization, no matter the size, emphasizes diversity and inclusion. These include:

  • Support for the local community
  • Reinforcing organizational values
  • Improving employee morale
  • Collaboration

Ultimately, executives are coming to the realization that organizations following such practices achieve superior financial results.

middle market

All Diversity in Action signatories are provided with a roadmap to better contribute to the efforts of the action committee and to encourage sharing best practices. This includes suggested practices for organizational policy and infrastructure, attracting and promoting diverse talent, building and sustaining inclusive cultures, due diligence and investment decision-making, and reporting and benchmarking. Industry leaders will also be able to contribute to current repository of resources, thus enabling collaboration across the industry.

The initiative also calls for unconscious bias training for employees, tracking gender and race statistics among portfolio companies, and assigning an executive to be accountable for diversity and inclusion.

The takeaway

Beginning in March, ILPA will publish quarterly updates and include thematic analysis of the range of specific actions that pledging firms commit to. Best practices will emerge and these themes will be instrumental in forging the path forward for middle market funds.

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Filed Under: Financial Services Tagged With: diversity and inclusion, Diversity in Action, Institutional Limited Partners Association, private equity

About Anthony DeCandido

@adecandido1

Anthony is a Partner at RSM US LLP with over thirteen years of experience at the firm. He serves as the Connecticut Financial Services Leader and his client responsibilities includes private equity funds, including those with multiple co-investment vehicle arrangements, hedge funds, fund-of-funds, real estate investment companies and asset lending businesses.

In January 2018, Anthony was selected as a senior analyst in RSM’s cutting edge Industry Eminence Program, which positions its senior analysts to understand, forecast and communicate economic, business and technology trends shaping the industries RSM serves. These senior analysts advise clients on conditions impacting middle market leaders. Anthony’s focus is on the financial services industry.

About Nelly Montoya

Nelly Montoya is a senior manager and a member of RSM US LLP’s global ex-pat team. Nelly is currently based in London and works on delivering the RSM client experience globally by improving cross-border communications, execution of global engagements, and building trust and working relationships throughout the world. Nelly has more than eight years of experience in providing assurance services to private equity funds, SBIC funds, investment advisers, proprietary trading firms and broker-dealers.

In 2020, Nelly was selected for RSM’s cutting-edge Industry Eminence Program, which positions its senior analysts to understand, forecast, and communicate economic, business, and technology trends shaping the industries RSM serves. Nelly’s focus is on financial services.

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