Avoiding tokenism: How LPs spot an authentic DE&I strategy

Investors are looking for signs of a truly inclusive culture, according to a panel of LPs at PEI Group’s Women In Private Markets Forum: North America this week.

Employing and promoting women and minorities is not enough to prove a firm’s commitment to diversity, said investors at PEI Group’s Women In Private Markets Forum: North America this week.

Token hires and promotions of women and minorities have become more common as the private markets industry becomes increasingly conscious of the importance of diversity, equity and inclusion, investors noted on a panel at the conference. “Some folks might have a wonderful title, but don’t actually feel like they’re pushing their [work] forwards,” said a member of an asset owner’s investment team. The conference was held under Chatham House Rule, so panellists can be quoted but not identified.

LPs should start by asking for the firm’s DE&I policy, but should dig deeper, one investor on the panel advised. “Everyone’s going to have the same one-page policy that says nothing meaningful,” she said.

LPs should also spend time with the fund management team “to figure out the dynamic within a team”.

“And you can dig into the decision-making process and you can get a sense, particularly [when speaking] in-person, of who is actually making the decisions in the room.”

Another panellist said: “My number-one indicator is the head of the shop. Are they showing humility? That’s my strongest indicator for a good culture, and somewhere where diversity isn’t just being paid lip service. My job as an LP is to identify, without actually working there, the ‘I’ [in DE&I], the inclusion piece, because that’s what really captures the benefits of diversity.”

In today’s tighter fundraising conditions, diversity can be a differentiator for a private equity firm pitching to an investor. Asked how GPs can catch her attention, one investor on the panel said: “The first thing I do is flip to the [organisational] chart and look at the team in front of me. I ask, how many people are different representatives? What’s the balance of male and female? What’s the balance of genders and colours and ethnicity? Because the more diverse your team is, I think the better your ideas are for investing in the real world.”

It should be noted, however, that this approach is not a reliable indicator that a firm has an equitable or inclusive culture, as New Private Markets has previously commented.