Why private equity firms should include more women on deal teams

The body of data demonstrating that diversity improves performance has been growing in recent years, but, until now, there hasn’t been a close look at how gender diversity in private equity teams affects the performance of investments. Oliver Gottschalg, a professor at HEC Paris, studied performance at the PE deal level, and the results are compelling: Private equity investment committees that include women produce higher returns and lower risk of failure than all-male counterparts, said Gottschalg, who presented his findings at a panel discussion hosted by the French business school and held at the National Arts Club in New York.

Gottschalg, a strategy and business policy professor and author of the HEC-Dow Jones private equity rankings, analyzed gender balance on the deal teams of nearly 2,500 PE transactions executed by more than 50 funds across 220 investment vehicles in North America and Europe.

The results were dramatic: Gender-diverse investment committees outperformed all-male investment committees substantially, as measured by several metrics: 7 percent more alpha; .52x more total value to paid-in multiple; and 12 percent higher internal rate of return. Also impressive: the failure rate of gender-diverse investment committees was 8 percent lower.

The findings provide concrete evidence showing the value of including women on deal teams and may help to convince skeptics, pointed out PE investor Sheryl Schwartz, who spoke on a panel to discuss the report. “With better performance and lower loss rates, why wouldn’t PE firms put women on deal teams?,” says Schwartz, who serves on the board of the Women’s Association of Venture and Equity (WAVE) and is one of Mergers & Acquisitions Most Influential Women in Mid-Market M&A.

“The biggest investors in the private equity asset class, including pension funds, are increasingly asking, ‘Where are the women? Where are the people of color?,’” said panelist Kirsty McGuire, deputy general counsel, legal and compliance, StepStone Group LP.

“Limited partners are asking the question and factoring diversity into their investment decisions,” said panelist Sally Mahloudji, managing director MVision Private Equity Advisers, which partnered with Gottschalg on the report.

Women still hold just 9.4 percent of senior positions at PE firms globally, the report found, indicating the industry still has a long way to go before reaping the benefits of gender diversity.

The low representation also underscores the importance of projects that feature successful female dealmakers, such as Mergers & Acquisitions' Most Influential Women in Mid-Market M&A.

Groups, such as Exponent Women, also play a crucial role in developing communities for women dealmakers. The group is hosting its second annual Exponent Exchange on July 11 at Second in New York. The event last year brought together 200 women.