Portfolio-level diversity is the next frontier for private equity to address.

“Diversity and inclusion is still a highly discussed topic, but has seen less progress in 2022 than is ideal,” Denise Odaro, head of ESG at PAI Partners, said in December. “Particularly, gender and racial diversity at executive and board level has been slow to improve compared to public markets. Four times more private companies have fully male boards than public companies.”

So far, fund managers’ diversity efforts have been directed to their firms’ own operations. But their focus is starting to extend to the companies and assets they own and control as 2023 gets underway. Apollo Global Management’s Dave Stangis, Thoma Bravo’s Donna Riley Bebb and BPEA EQT’s Tang Zongzhong all cited diversity in their portfolios as a 2023 priority or area of interest in a series of interviews New Private Markets conducted with senior sustainability professionals in private markets.

For some firms, promoting diversity in portfolio companies is about driving value. EQT for example, sees “potential to build stronger teams in our portfolio companies through our diversity initiatives.” Partners Group’s Carmela Mondino said addressing diversity is “very important for ensuring you have access to the best possible talent” and can lead to “creating value in the long run”. And for Actis’s Shami Nissan, the firm’s DEI initiatives are “important in supporting fairer societies… and [to] drive performance”.

Tide coming in

Many more firms are likely to be picking up this issue. The ESG Data Convergence Initiative – which counts 169 GPs among its members – includes portfolio level diversity as one of its six metrics for fund manager members.

In 2022, GPs were required to report on the percentage of board members that were women for each portfolio company, and the percentage of board members from under-represented groups for portfolio companies in the US, UK, Canada and Australia. Under-represented group members on boards was an optional metric for portfolio companies in other countries. The number of LGBTQ board members and women in C-Suites were two other optional metrics for all GPs.

This year, EDCI has introduced C-Suite level women as another mandatory metric for all GPs.

The EDCI’s focus is on measurement. It collates this data to produce benchmarks – medians of the total dataset – and members can adjust the geographic, company size and sector-specific parameters to generate more precise benchmarks for each metric. There is no requirement for EDCI members to take action or to show improvement.


“Moving beyond measurement and into concrete actions” is a “fundamental issue that needs more attention” from fund managers, said Bregal’s Alvar de Wolff.

A number of firms are taking action on portfolio-level DEI by setting representation targets. Permira, for example, has set board gender diversity targets for one of its buyout funds and Astorg has set minimum targets for diversity on company boards for all future investments: 40 percent of board members should be women or minorities. Carlyle secured a €2.3 billion debt facility in 2021 linked to ESG goals, including achieving 30 percent board diversity across majority-owned portfolio companies over three years.

The Institutional Limited Partners Association’s Diversity In Action framework reported in 2021 that 28 percent of its GP signatories had set minimum targets for portfolio company board level diversity.

Set the CEOs free

But targets aren’t everything. As Vista Equity Partners’ head of diversity and inclusion Khalida Ali noted, DEI at the portfolio level is a critical but delicate issue, and targets are not the only lever for private equity firms to pull. “There isn’t a checklist you can follow, and you can’t take a one-size-fits-all approach,” she told New Private Markets. GPs “need to take a company’s geographic footprint and their relative starting point into account”.

Vista’s portfolio-level targets are not about representation, but about engagement. The firm requires all portfolio companies’ chief executives to implement “a DEI strategy that is authentic, [appropriate to the company’s] size and scale and that fits with their culture”, said Ali. “Companies need autonomy to develop robust [DEI] programmes.”

Ali noted that “it is important to see continued progress” over Vista’s ownership period and GPs “can definitely make a difference during [their] time with a company”. But quantitative data and targets for representation will not always be indicators of progress on DEI. Vista prioritises setting companies up to “engage in this work at scale” and “advance the work” beyond the ownership period, said Ali. This is about a company’s culture and governance rather than its makeup. For example, Vista requires all portfolio companies to ensure that DEI is discussed at every quarterly board meeting – and has created a template meeting slide to support companies in achieving this, says Ali.

With portfolio-level diversity coming into sharper focus this year, many GPs will be utilising both hard targets and tailored qualitative measures to create value and fairness through stronger diversity.