When you think of private equity, what comes to mind?

On Monday afternoon of President’s Day Weekend, I sent a group message to nine best friends, “When you think of private equity, what comes to mind?”

My more pragmatic friends gravitated toward ideas like “holding companies,” “acquisitions,” “value maximization,” and “BlackRock.” Others assumed a more socially-minded lens to the game, sharing words like “rich,” “busy,” “capitalistic,” “mystery,” and less favorably, “shady.”

However, what caught my interest most were recurring mentions of gendered ideas like “finance bro,” “Patagonia dude,” “white businessmen,” and “male-dominated.” Notably, not one person mentioned words associated with women’s presence in PE—unless it highlighted the industry’s lack thereof. My intent is presenting itself, but I won’t leave you wondering. I wanted to know whether the notoriety of PE’s lacking gender diversity would emerge as a top-of-mind association with the industry. It (and an excessive number of Patagonia vest memes) did.

Now, let’s level set. In addition to being far from a formal survey (in my work, we know a thing or two about sample sizes and survey integrity), my friends are not in private equity or related fields. However, my friends’ criticisms of PE’s lacking gender diversity should not be misconstrued as outdated or uninformed. Their “Patagonia dude” quips, stereotypical as they may be, point to the meaningful and enduring issue of lacking gender diversity in PE today.

So, in honor of Women’s Month, let’s examine gender diversity trends in the space today, how they are sometimes difficult to evaluate, and why those in private equity—regardless of gender identity—have considerable incentives to strive for greater gender diversity.

The Current State of Gender Diversity in Private Equity: We’ve Got A Long Way To Go

Private equity is male-dominated. Is this earth-shattering news? Hopefully not, but how familiar are we with what that implies? For example, just how male-dominant is PE? How many women hold positions of power and influence? Are women being promoted at a comparable rate to men? How about their relative attrition? Understanding the data behind these questions makes private equity better positioned to provide informed and practical solutions to overcoming current gender parity obstructions.

The number of women in non-investing roles often inflates the average—espousing a more equal picture than what reality entails. The percentage of women in investing roles generally declines the higher you go in role level, with only 15% of investing managing directors or partners being women.

McKinsey & Company released a study in 2023 to understand diversity representation in global private markets. This study represents the feedback of 66 institutions, precisely 54 private equity firms, and 12 institutional investors across the globe. Regarding gender diversity, its analysis shows that only 35% of overall private equity roles are held by women. Further, it shows that women’s presence declines as they climb the ladder. To illustrate, women comprise 48% of entry-level roles and only 17% of C-level roles.

Does that 48% at entry-level sound optimistic, nearing that parity sweet spot of 50%? While 48% sounds promising, there is a reason we’ve been ceaselessly warned to be critical of the data we consume. McKinsey shows that 48% represents women's total share of entry-level roles, combining those in investing and non-investing roles.

The number of women in non-investing roles often inflates the average—espousing a more equal picture than what reality entails. When you look at how many women are in investing roles, often roles of more significant influence and power, that entry-level figure dwindles to just 33%. Mirroring overall trends, the percentage of women in investing roles generally declines the higher you go in role level, with only 15% of investing managing directors or partners being women.

Promotion and attrition rates tell a similarly lackluster story. Generally, women are promoted less and leave the space more than men in comparable positions. McKinsey shares, “Globally, men in investing roles are about 50 percent more likely, on average, to be promoted than their female colleagues, a trend that persists across all levels in investing roles.”

The current story is not ideal—that much we surmise. But what explains it? The list is long, undoubtedly, but a substantial and somewhat overlooked obstruction exists in how PE is regulated.

The Private Equity Predicament: Why Limited Disclosure Requirements Pose Challenges to Reaching Greater Gender Diversity

Harvard Business Review recently released an article suggesting that the efficacy of DEI initiatives is often tied to how well a company tracks diversity metrics. It shares that without adequate data, DEI efforts are merely shooting in the dark, touting the importance of something and spending millions of dollars on solutions, accomplishing very little. In other words, it’s hard to know where we should focus on promoting greater gender diversity if we don’t have a transparent and data-driven understanding from the start.

Unfortunately, human capital data, including gender diversity statistics, is opaquer in private markets. Private equity faces near non-existent human capital public disclosure requirements. Public companies, in contrast, are subject to more substantial and evolving disclosure requirements.

For example, consider the SEC’s 2020 modernization amendments. These amendments mandate public companies to publicly provide more comprehensive human capital data to the extent that it is material to investors. Public securities exchanges have also implemented more extensive requirements, like Nasdaq’s Board Diversity rule. One part of this rule mandates that listed companies publicly disclose diversity statistics annually using a standardized template. The bottom line? As public companies increasingly face more comprehensive and standardized disclosure requirements, it is inevitable that these companies enhance the breadth and efficiency of their DEI data collection. In turn, they are getting a clearer picture of diversity in public markets, becoming better equipped to identify and rectify systemic diversity weaknesses.

The industry is seeing a rise in institutional investors’ demand for PE firms to report diversity statistics within their due diligence periods

Conversely, PE lacks strong human capital public disclosure requirements and pressures to track DEI statistics consistently. It’s not that the importance of DEI is lost on the industry. On the contrary, the industry is seeing a rise in institutional investors’ demand for PE firms to report diversity statistics within their due diligence periods. However, there is a lack of an industry standard on what these statistics should be; we see data requests that vary drastically from investor to investor, which can be challenging for PE firms to satisfy. This creates a more fragmented understanding of how the space performs in this area, which, as HBR’s article points out, isn’t very conducive to delivering data-driven solutions.

Remember PE’s figure of women in the C-suite – 17%? Broader corporate America’s is 28%. While many reasons might explain this deviation, it would be an oversight not to consider the substantial variation in how private and public markets are regulated in measuring these metrics.

So, when we think about what the private sector should be doing to enhance gender parity, an initial critical step is to strive for greater industry coordination in how the space can better measure its current level of diversity. This bolsters its ability to identify systemic weaknesses, establish industry baselines, and advance meaningful DEI progress. But big picture—why should PE be motivated to do this?

What is private equity missing when it is missing women?

The Big Picture: Having More Women Boosts PE’s Problem-Solving Skills
(It’s Also Financially Advantageous)

Organizations with greater gender diversity tend to exhibit better EBITDA margins across time and higher capital returns than those with less gender diversity.

The success of private equity teams is often tied to the efficiency and creativity of their problem-solving skills. Think about it. Private equity funds strive to acquire a company for a short period and then resell it at a profit. This involves an innumerable number of complex decisions, from identifying the most prospective potential deals to creating an optimal exit strategy before the company is even acquired. So, if private equity firms can enhance their problem-solving skills, they will be more efficient in reaching their goals. An efficient way to do this? You guessed it: greater gender diversity. Studies support that teams with greater diversity have stronger creative problem-solving skills and broader perspectives that lend themselves to more robust ideations. Moreover, studies show these teams are more innovative and resilient than homogenously male teams. These all enhance a private equity firm’s ability to succeed.

It's tough to overlook the numbers. Studies repeatedly demonstrate that companies with greater gender diversity often display stronger financial performances. The Credit Suisse Research Institute has examined how gender diversity impacts corporate performance. It indicates that organizations with greater gender diversity tend to exhibit better EBITDA margins across time and higher capital returns than those with less gender diversity. McKinsey corroborates this finding, demonstrating that firms that are more gender-diverse often are more profitable than those less gender-diverse.

The dynamics of gender diversity in private equity are undoubtedly nuanced, but the case for the industry to strive for greater gender diversity is clear-cut. The underrepresentation of women—especially in positions of power and influence—demonstrates a massive missed opportunity. So, addressing current parity obstructions, like lacking DEI industry coordination, is not just a moral imperative for private equity but one that can immeasurably enhance its operations. As for the affinity for Patagonia, no studies have dared, perhaps to the dismay of my friends. But, what I can tell them, now that I’ve done my study, is that their perceptions of PE being male-dominant are, unfortunately, well-founded. But here’s to hoping that one day, they won’t be.

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About the Author

Tyler Stoner is an Associate in Strategex’s Customer Due Diligence practice. She helps Private Equity clients mitigate transaction risk and accelerate value creation. Tyler graduated from the College of William & Mary. There, she earned a BA in Government and a minor in Interdisciplinary Innovations & Entrepreneurship. In addition, Tyler was a student leader in William & Mary’s Office of Community Engagement. In this role, she led her peers to mitigate housing and food insecurity in the Greater Williamsburg community.

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