Female retention: The obstacle to gender diversity in private equity firms 

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The business case for greater workforce diversity is a powerful one: different backgrounds and experiences bring greater innovation, and that can feed into the bottom line.

Unidentified biases within policies, processes and programmes may result in:

  • A culture that is not inclusive or supportive of everyone
  • Behaviours that do not encourage flexible working arrangements
  • Unexplained pay gaps between demographic groups
  • Differences in hiring and promotion rates between different groups.

However, in working with private equity (PE) firms, our experience is that female diversity and rising challenges related to female retention are major concerns for HR and leadership. 

This is not surprising, as women hold only 12% of senior investment roles and only 38% of junior investment roles in PE firms in the UK, according to a recent study conducted by the BVCA and Level 20.

Through years of experience, vast research and ongoing interviews with sample PE firms, Mercer has been able to reflect and determine the root causes for the ongoing challenges related to female retention in the PE industry.

Every organisation is at a unique spot on its DEI journey. Typically, the sample PE firms we interviewed were proactive in terms of responding to key events and communicating internally regarding DEI topics, but they lacked the formal multi-year published strategy to label these approaches as progressive or even best practice. There is room for the industry to progress and formalise its approaches.

The challenges related to female retention are multi-dimensional

Some of those raised included carried interest, maternity/paternity leave and organisational culture.
  1. Carried interest

    Associates are eligible for carry based on their role within the M&A process. These vary from firm to firm but can be project-based, and historically allocations were chosen based on who might shout the loudest or be in the room at the right time.

    From an environmental perspective, for those seeking to have the flexibility to work from home, this may reduce their chances for selection and therefore carry.

    Sample interviews revealed that females were not included in project opportunities due to cultural exclusions and upcoming maternity leave.

    Some firms that we interviewed had implemented a fixed pay structure, with future pay increments known in advance, and found it to be helpful in reducing both competitiveness among peers and project hoarding. They also distributed carry as a bonus to analysts, rather than based on nuance associated with project members. This had a positive influence on team attitudes, as fixed pay structures could be helpful in creating an environment that is supportive for both men and women to take parental leave, as progression is not based on project work alone. However, some employees can take advantage of knowing the minimum level of performance to secure the next pay rise.

    Recommended actions

    • Review how equitably projects are resourced and revise if necessary
    • Consider if carry should be collated as a firm profit and distributed to teams based on individual performance, particularly for more junior roles
    • Determine if a change in your pay structure could help drive a shift in your culture
  2. Maternity/paternity leave

    While PE firms are beginning to review and enhance maternity pay for employees, there has been little focus on enhancing paternity pay beyond what is statutory. Leading firms across the broader financial services industry are now aligning pay for any parent to be equal and competitive – up to a year of full pay. 

    Progressive parental leave policies are vital to creating the cultural foundations for diverse organisations to flourish. There is a risk that, as these benefits become outdated, employees will take their skills to other industries in search of more competitive and holistic benefit offerings or leave the workforce entirely.

    Alignment of pay should be considered for firms that want to attract top female talent. Uptake by males is typically low. Firms that we interviewed noted that male employees rarely wish to take full statutory paternity leave due to the impact on their projects and progressions. This “work first” culture further widens the female experience gap.

    Not all firms provide explicit guidance or support for those who may be on less traditional pathways to parenthood, such as those in same-sex relationships or inclusive of adoption or surrogacy.

    Recommended actions

    • Enhance your family-friendly leave provisions beyond what is statutory to stay competitive
    • Consider aligning maternity and paternity leave for greater equity
    • Encourage leaders to promote family-friendly leave as a positive action to ensure male colleagues take the time off, and spotlight role models who participate
    • Introduce a returners programme
  3. Organisational culture

    A common theme in our sample interviews was the prevailing culture of competitiveness, work-focused and non-inclusive banter that many would already associate with the industry. 

    For some firms, females are mentored in groups, which enable male mentors to understand the pervasiveness of some of these challenges, and to learn that these are not isolated impacts.

    Many employees will experience menopause or menopause-like symptoms, something PE organisations are not typically prepared for, and many managers have not received training on how to support them. This is likely to impact senior female employees as they reach the peak of their careers. 900,000 women in the UK leave the workforce each year due to menopause[1] symptoms and a lack of support in the workplace.

    Mercer’s recent Global Talent Trends report shows that for any employee to stay in an organisation and thrive, they have to feel that they belong, that they are valued and that they provide a meaningful contribution to the team. For females, this may not be the case, particularly if representation is already low and they lack role models to show how they can thrive in positions that are more senior.

    Recommended actions

    • Introduce formal programmes such as peer coaching, reverse mentoring and sponsorships
    • Conduct exit interviews to determine the root causes behind turnover and seek to mitigate these
    • Create employee network groups to provide safe spaces to raise awareness of different themes
    • Implement menopause policies, education and support
Lucy Brown
Jaclyn Andrasek
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