Seizing the diversity opportunity in private equity and beyond

Most successful business leaders would consider themselves problem solvers; they’re always exploring ways to do things better, faster, or more efficiently than they’ve done before.

 

By Anthony Healy
CEO and Managing Director, Australian Business Growth Fund

But as another International Women’s Day approaches, I question why so many leaders choose to ignore evidence of the benefits that come from breaking bias and prioritising diversity and inclusion.

 

Women, people of colour, Aboriginals & Torres Strait Islanders, people living with disabilities and other minorities all remain underrepresented in many professional industries, but the problem is particularly rife within asset management and private equity firms. Today, more than a third of Australian PE firms have zero women on their investment teams.

A 2020 study by McKinsey and Company found that women comprised just 20 percent of senior leadership in private equity firms, compared with 30 percent in public companies. In all, white men control 93% of the venture capital dollars globally.

What these firms are missing, however, is that improving workplace equality isn’t just ‘the right thing to do’. Increasing diversity results in stronger, more productive, and more profitable businesses. Research by the National Association of Investment Companies (NAIC) found that diverse PE funds outpaced the Burgiss median for net Internal Rate of Return (IRR), Multiple on Invested Capital (MOIC) and Distributed to Paid In (DPI) from 1998 to 2020.

Diversity also increases an asset manager’s operational success, with a study by Aon finding that firms that do not adhere to diversity, equity and inclusion (DEI) best practices have five percent more operational risk flags overall compared to firms that do.

 

Taking a new approach

At the Australian Business Growth Fund (ABGF), we see diversity for what it is – an incredible opportunity. It’s an opportunity for us to construct a high-performing portfolio, drive strong shareholder returns and support the wellbeing of our employees, partners, and investee companies alike.

But seeing an opportunity isn’t the same as seizing it. Rewriting the well-worn script on diversity and combatting pervasive unconscious bias means switching off autopilot and committing to doing things differently. For us at ABGF, we feel strongly about diversity (particularly within our senior leadership and investment teams) for two key reasons.

First, as statistics above indicate, we believe diversity leads to stronger investment performance – partly because investors with diverse experiences, backgrounds, and perspectives can spot market opportunities that may have gone unnoticed and connect with a wider pool of business owners.

The demographics of ABGF’s team mirror those of the businesses we’re looking to invest in and support. Our investment team (and team at large) is gender balanced and our leadership team is majority female. Just like the Australian population as a whole, one-third of our staff was born overseas. We have an even split of Gen X and Gen Y staff representing a diverse range of religious and non-religious affiliations. We’re taking the lack of diversity in private equity and turning it into a competitive advantage.

Our commitment to diversity also reflects the uniqueness of our fund and our investment strategy. ABGF invests long-term growth capital into Australian small-medium enterprises (SMEs). We act as an active, strategic partner – filling that vital gap between venture capital and private equity funding. Most importantly, we provide patient capital and we only ever take a minority stake. Unlike many majority owners, we don’t dictate to entrepreneurs or pressure them for an exit. In addition to astute analytical skills, this long-term approach requires more empathy, relationship-building, and people skills that only a diverse team can provide.

Bringing diversity to life

Having made a conscious commitment to diversity and breaking biases, we took action in a number of ways right from the beginning. To put it simply, we treat diversity as a non-negotiable. For any open role, we consider an even split of male and female candidates and in doing so, were able to build a diverse leadership team in just three months.

We acknowledge that there is a war for talent and that finding diverse candidates takes more effort. But we don’t accept the notion that the talent ‘doesn’t exist’ – instead, we improve our search. For example, when we had difficulty finding a female investment manager, we decided to review our strategy, switch recruiters, and tap into different networks – resulting in a successful hire.

We’ve also focused on building an inclusive culture and implementing polices that align with the expectations of top candidates today. We’ve embraced flexible work to suit the changing needs of our staff, provide six weeks annual leave for employees, acknowledge diverse religious holidays and think inclusively when planning team events and celebrations.

Importantly, we’ve also adopted a gender-neutral parental leave policy – with six months’ paid leave for new mums and dads. Progressive parental leave policies like this have been shown to halve the share of managers who resign compared to those without access to an employer’s scheme [1]. And unlike many PE firms that limit long term carry incentives to their senior leaders and investment teams, we enable every single employee to participate in the success of the Fund. Each of these initiatives work together to demonstrate to our staff an authentic focus on inclusion.

This focus extends to the way our staff interact, make decisions, and talk through new opportunities and challenges. Having a diverse team around the table enriches the conversation and ultimately, enables us to make stronger, more considered decisions. As leaders, we focus on listening – which includes checking in on team members’ views, clarifying what has been said, and pulling in those who are sitting on the sidelines of the discussion. With a clear decision-making structure, we create space for team members to be heard and then move forward decisively. This process has helped us work through challenging discussions, including establishing remote working policies post COVID.

[1] BCEC | WGEA: Gender Equity Insights 2000: Delivering the Business Outcomes

 

Business leaders can bring out the best of their teams by empowering them to bring their full selves to work. We are early in our journey at ABGF, but by seeking out and actively appreciating difference, we are confident we will continue to attract and retain the right talent – namely, professionals who are committed to helping us and our portfolio companies succeed long into the future.


Can ABGF assist your business?

At the Australian Business Growth Fund™, we provide long-term growth capital to enable SMEs to scale without giving up control of their business. Start the conversation with us today.