© Oliver Wyman
MOVING TOWARD GENDER BALANCE IN PRIVATE EQUITY IN EMERGING MARKETSKEY FINDINGS11 FEBRUARY 2019
2© Oliver Wyman
Materials outline
1 Overview• Approach• Key findings
2 General Partners• Gap in female leadership• Fund performance of gender balanced vs. unbalanced firms
3 Limited Partners • Current influence on General Partners
4 Portfolio companies• Gap in recipients of capital• Performance of gender diverse executive teams• Relationship between General Partner and investee diversity
5 Recommendations• General Partners: Talent management and portfolio companies• Limited Partners: Interface with General Partners
6 Design and dissemination plan• Dissemination Strategy and Objectives• Your role in dissemination• Design preview
Overview1
4© Oliver Wyman
Our research utilized an iterative, hypothesis driven approach
Quantitative analysis• Used to assess gaps, test hypotheses and study
the business case • Unique PE/VC EM gender & performance
dataset from IFC, RockCreek & other 3rd parties- >3,000 General Partners with gender data- >800 funds with performance data- >5,000 PE/VC deals with CEO gender data- >400 investees with performance
and leadership team gender
• Data quality checked via several methods
Survey• Primary objectives included
- Test hypotheses on drivers of business case and gender gaps at scale
- Understand perceptions and how they differ across gender, market, and seniority
• >550 respondents from emerging and developed market private equity
Advisory Panel• Provided diverse perspective & support
- Guidance of research through interview- Review of key findings- Dissemination support
• Members are senior leaders from premier institutions- Bill Ford, General Atlantic- Caren Grown, World Bank- Claudia Zeisberger, INSEAD- Jenny Lee, GGV Capital- Runa Alam, DPI- Shelby Wanstrath, TRS Texas
Interviews• Primary objectives included:
- Practitioner view of business case- Hypotheses for drivers of low representation- Recommendations for overcoming barriers- Case studies to showcase best practices
• Interviewed >40 General Partners, Limited Partners, and gender experts across developed & emerging markets
• Hypotheses then tested at scale in surveyIterative research method
Overview
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The key findings of our research include…
General PartnersInvestors
Limited PartnersInvestors
Portfolio CompaniesInvestees
11% of investment partners are women, vs. 28% for
leaders in other industries
Gender diverse GPs achieved
10-20% higher returnsthan male/female dominated GPs
Views of drivers differacross men and women at senior and
junior positions
7% of PE/VC capital is invested in female entrepreneurs, with skew toward early stage investments
Female partners invested in
50% more female entrepreneurs than male partners
General Partners feel diversity is important only to 25% of their LPs
25% of LPs ask about gender diversity
when committing capital to funds
Gender diverse leadership teams had
20-30% higher valuation increases vs.
non-diverse companies
Overview
65% of LPs feel
diversity is important / top priority
General Partners2
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Gap in female leadershipOnly 11% of emerging market senior investors are women, lagging other industries Percent seniors investors that are femaleBy developed market, emerging markets, and emerging market country (n = 10K senior investment professionals)
General Partners
Source: Combined dataset from IFC, RockCreek, Preqin, Pitchbook and publicly available data; Grant Thornton report Women in Business: new perspectives on risk and reward1. Gender diversity is based on the percentage of senior investment professionals that are female. This focuses on Managing Partners, Partners and Managing Directors, excluding senior
professionals in non-investment related roles (e.g., CFO, Investor Relations)
Δ between otherindustries and PE/VC 16% 10% 12% 28% 22% 17%
15%12%
7% 8%10%
7%
12%
31%29%
17%20%
38%
29% 29%
LACChina East Asia (excl. China)
South Asia SSAMENAECA
PEaverage
10% 11%8%
Emerging market
excl. China
Developed market
Emerging market
Private equity and venture capital partnersAll industry sectors
Other industries’ average
17%
Percentage of sample 45% 11% 14% 14% 7% 7%2%
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Gap in female leadershipOnly 15% of EM firms have “gender balanced” senior investment teams, though this varies across marketsGender diversity of senior investment teams at firm level1
Overall emerging markets (n = 2,000 firms)Proportion of gender balanced firms by regionDeveloped (n=6,800) vs. emerging markets (n=2,000)
68%
16% 15%
1%
Male dominated
All male Female dominated
Gender balanced
All female
0%
13%
15%
20%
13%
11%
11%
8%
17%
Developed market
East Asia
Emerging market
SSA
LAC
South Asia
ECA
MENA
EM overall
Source: Combined dataset from IFC, RockCreek, Preqin, Pitchbook and publicly available data. 1. Gender diversity is based on the percentage of senior investment professionals that are female. This includes Managing Partners, Partners, Presidents, Founders, Managing Directors and
Investment Directors, excluding senior professionals in non-investment related roles (e.g., CFO, Investor Relations)2. 30% to 70% is from “tipping points” identified in external research and initiatives. Our report includes sensitivity analysis to this band, but does not identify nor endorse a tipping point
Percent female2 0% <30% >30%,
<70% >70% 100%
General Partners
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Business case for moving toward gender balanceIncreasing gender diversity of senior investors appears to be positively related to returns
Performance vs. percent bucket female senior investors2,3
Median excess net internal rate of return (n = 591)
-0.1%
0.5%
1.7%
0.3%
< 10% 10% to 30% 30% to 70% > 70%
Source: Combined dataset from IFC, RockCreek, Preqin, Pitchbook and publicly available data; IFC survey on Gender Diversity in Private Equity in Emerging Markets (2018)1. Survey response are provided for respondents that buy into the business case (54% of respondents as of 10 January)2. Excess net internal rate of return is calculated using calculated benchmarks controlling for geography, and vintage year (year by year, 1980-2018) 3. Senior investment teams include Managing Partners, Partners, Presidents, Founders, Managing Directors, and Investment Directors; excludes non-investment related professionals4. +1.7pp depends on assumptions on benchmark sensitivity requirements and relevant vintages. The sensitivity ranges from +0.9pp to +1.7pp
Direct and indirect benefits of gender balanceNon-exhaustive; from interviews surveys & secondary research1
1Improved investment decision-making• Identified as driver by 87% of survey respondents• Different perspectives; better understanding of
businesses solving different needs
2Enhanced sourcing from different networks• Identified as a driver by 60% of survey respondents • Networks tend to be biased toward similar gender• Professional networks (95%) cited nearly 2x as
common as next deal sourcing channel in survey
3Improved investor relations• Identified as a driver by 60% of survey respondents• >70% of surveyed Limited Partners said gender
diversity important consideration when investing
% female senior investors
(mutually exclusive)
General Partners
Fund count 424 112 46 9
Small sample
+1.7pp4 represents an 20% annual increase in performance relative to median EM PE returns (~8%)
Limited Partners3
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Limited Partners’ influence on the General PartnersMost Limited Partners believe improving gender diversity is important, but less than 30% of GPs experience this importance from their LPs
Limited Partners
General Partners’ perception of the importance their Limited Partners place on gender diversityN=273; as of 30 Jan
Limited Partners’ view of the importance of gender diversity when committing capital to fundsN=26; as of 30 Jan
65%of surveyed Limited Partners
believe that gender diversity
is important or a top priority
Source: IFC survey on Gender Diversity in Private Equity in Emerging Markets (2018)
29%
42%
18%
9%
1%
Not important
Somewhatimportant
Important
A top priority
Very important
Portfolio companies 4
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Gap in female entrepreneurs receiving capitalFemale CEOs receive 7% of invested private equity capital in emerging marketsProportion of private equity and venture capital deals in female-led businesses1
Volume of deals (n = 5,400)
8%9%
8%
6%
9% 9%
7%7%
9%
4%5% 5%
6% 6%
SSAMENALACEast Asia ECAOverall South Asia
% deals to female-led businesses% funding received by female-led businesses
Median funding (‘000s USD)
Female 7,000 12,100 12,600 500 3,800 5,200 500
Male 11,000 30,000 14,800 12,000 2,800 10,000 9,700
Ratio (F / M) 65% 40% 85% 5% 135% 50% 5%
Women receive higher fundingWomen receive lower funding
Source: Combined dataset from IFC, Pitchbook and publicly available data1. Female-led businesses are defined as companies with female CEO or founder
Portfolio companies
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Gap in female entrepreneurs receiving capitalEmerging market investments in female entrepreneurs are skewed toward early stagesProportion of private equity and venture capital deals involving female -led businesses1
Volume of deals (n = 5,400)
8%
13%
11%
8%
5%
7% 7%7%
12%
8%
4%5%
6%7%
Growth Equity BuyoutOverall Accelerator / Incubator
Later Stage VCEarly Stage VCSeed Round
% deals to female-led businesses% funding received by female-led businesses
Source: Combined dataset from IFC, Pitchbook and publicly available data1. Female-led businesses are defined as companies with female CEO or founder
Median funding (‘000s USD)
Female 7,000 35 500 2,200 37,100 19,500 32,900
Male 11,000 30 400 3,000 26,000 20,000 55,600
Ratio (F / M) 65% 120% 130% 70% 140% 100% 60%
Women receive higher fundingWomen receive lower funding
Portfolio companies
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Low representation of gender balanceOnly 19% of portfolio companies have “gender balanced” senior leadership teams, while more than 65% are “all male”
68%
12%19%
1%
All male
0%
Male dominated
Gender balanced
Female dominated
All female
Gender diversity of portfolio company leadership teams1
Overall emerging markets (n = 810 portfolio companies)Potential barriers for low representationNon-exhaustive; based on interviews, survey and secondary research
Percent female 0% <30% >30%,
<70% >70% 100%
1Network based sourcing may blind non-diverse investors to potential deals• Professional networks cited nearly 2x as common
as next deal sourcing channel in survey
2
Subconscious biases in due diligence may undervalue diverse management teams• Management team most important investment
consideration in survey• Subjective qualities (“vision for growth”, “personality
traits characteristics) most important considerationswhen evaluating teams in survey
3Gender not actively considered in portfolio supervision• 32% of GPs pursue gender diverse candidates
when sourcing talent for portfolio companies
Source: Combined dataset from IFC, Pitchbook and publicly available data; IFC survey on Gender Diversity in Private Equity in Emerging Markets (2018)1. Leadership include CEOs, Founder, other C-suite executives, Managing Directors and Directors
Portfolio companies
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Business case for moving toward gender balanced leadershipGender balanced executive teams have higher valuation increases than non-balanced teams, which is in-line with industry expectationsIndustry perception of business caseBased on survey (n = 466); as of 30 Jan
Median increases in valuation of portfolio companiesBy diversity of leadership teams
62%believe increasing gender
diversity of senior managers would improve returns
1.55x1.64x
Gender balancedGender unbalanced
+5.8%
• Women (79%) are more likely to believe than men (51%)
• Developed (70%) more likely to believe than emerging markets (55%)
• Most significant drivers are:- Improved decision-making (86%)- Enhanced management (61%)- Serve diverse customers (60%)
Unadjusted step-up valuation ratios1.66x is a 66% increase from the first valuation
Ann. valuation growth less peer benchmark1
Company or peer average = 0%
Source: Combined dataset from IFC, Pitchbook and publicly available data; IFC survey on Gender Diversity in Private Equity in Emerging Markets (2018)1. Benchmarks control for the initial investment year and geography of the company
Change in company value between initial and
last investment
Annual valuation change above (or below) peer portfolio companies
Median ann. valuation increase is 20%, so +6.2%
is a 30% improvement
Median annualized valuation increase is 20%, so ~5.5%
is a 25% improvement -0.1%
Gender unbalanced Gender balanced
+5.4%
+5.5%
Portfolio companies
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Relationship between General Partner and portfolio company diversityFemale lead partners are more likely to invest in female CEOs than male partners
Proportion of deals with female CEOsBy gender of the deal partner (n = 1,492 unique deals)
7%
12%
Female deal partnersMale deal partners
+5pp
Female partners led >50% more PE/VC deals with women than men
Source: Combined dataset from IFC, Pitchbook and publicly available data
Portfolio companies
“Female founders may be uncomfortable talking with all-male
investors. Having women on your team would make working with you easier.”
“Female partners are simply more likely to have a diverse set of entrepreneurs
within their networks. This makes it easier to identify these opportunities
and connect with them when they come in the door”
Increasing gender diversity of General Partner investors could help improve gender mix of firms’ portfolios and overall investments in female entrepreneurs
Recommendations5
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Recommendations for General Partners – Talent managementFirms leaders should clearly establish improving diversity as a priority, and then reduce potential gender biases in recruiting, retention and sponsorshipRecommendations for improving diversity of investment teamNon-exhaustive
1 Establish tone at the top with explicit targets
• Be candid about the status quo• Set ambitious, long-term goals• Create targets and collect data• Transparently diagnose when goals missed
“Demonstrate it as a priority at the senior level. Make bold goals knowing that you’ll
fail, as it will start the conversation and move the firm in the right direction”
2 Introduce more inclusive hiring practices
• Look outside of network & referrals• Capability-based hiring to expand from
Banking & PE new hires• Standardize hiring & interviews
“Firms are not expanding outside of their own networks, which means organizations perpetuate themselves. Look outside of the
network and use interview targets”
3 Don’t force choice between family and career
• Offer maternity leave, at minimum• Support equal parental leave as short
break in a long career• Enable synchronous work/family
management (reward output, not face time)
“Showing women that it’s a continuum between work and home makes the choice of a career in private equity easier. Work
goes home with you and home comes with you to work.”
4 Close the sponsorship gap• Measure sponsorship gaps (e.g., network
maps)• Introduce formal sponsorship requirements
“Everyone that comes in the door at FIRM has a sponsor on Day One. It is their
responsibility to make that person successful and, if they’re not, the sponsor is
at least in part to blame .”
Case studies(non-exhaustive)
Interview quotesAnonymized
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Recommendations for General Partners – Portfolio companiesCollect diversity data of investment process, include diversity targets across pipeline, and influence portfolio companies toward gender diversityRecommendations for improving diversity of investment teamNon-exhaustive
1Acquire data to test if women-led businesses (WLBs) are excluded from the process
• Measure number of WLBs sourced• Test if disproportionately falling out of pipeline
(due diligences, investments, oversight) • Diagnose root causes if differences exist
2 Increase diversity of sourced candidates
• Diversify networks via diverse investors• Establish targets for diverse sourcing• Support female entrepreneurs through
organizations, mentoring upstream of investments
3 Minimize biases that reduce diverse investments
• Reduce potential for bias to influence (e.g., diverse team, training)
• Positively screen for diverse businesses or management teams
4 Drive change in portfolio companies in oversight
• Tie capital commitments to practice outcomes on gender diversity
• Source diverse candidates for senior management
• Provide guidance & feedback on best practices
Case Studies
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Recommendations for Limited PartnersEstablish explicit goals, ask questions about diversity in due diligence questionnaires, and continue the conversation post-investmentRecommendations for improving diversity of investment teamNon-exhaustive
1 Establish goals related to diversity of investments
Potential goals include:• Conversations with % of GPs on gender diversity• Raising number of GPs that provide gender data• Improving percent of female partners invested in• Increasing percent of capital indirectly invested in
female entrepreneurs or gender balanced teams• Only investing in gender diverse GPs / companies
2 Ask questions about diversity in due diligence questionnaires
Types of questions include:• Data requests (e.g., percentage of investment
employees are female at various levels)• Strategy (e.g., “what are you doing to help attract
and retain women at your firm?”)
3 Use post-investment oversight role to drive change
• Discuss diversity in ongoing formal engagements (e.g., LPAC meetings, general reports)
• Hold accountable for progress• Share best practices and lessons learned from
own experience, observed from other GPs
Case Studies
Design and dissemination6
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We have developed a multipronged dissemination strategy that targets a soft launch 7 March
Draft report designIllustrative
Overview of dissemination planFor discussion
Key dates • 7 March 2019: Soft launch through digital channels• 25 March 2019: Hard copies made available
Objectives
• Influence the flow of capital to female entrepreneurs• Initiate an industry change to move toward gender balance• Promote the recognition of IFC as a thought leader• Increase impact on IFC clients and future businesses• Prompt follow-on research
Target audience
Across emerging and developed markets, including:• Fund Managers, LPs, Institutional Investors, Financial Institutions,
Policymakers, Academic Institutions, Impact Investors, etc.
Dissemination channels
• Industry Conferences, including‒ Women in Private Equity Summit (Mar 2019)‒ WB Spring Meeting Side Event (April 2019)‒ EMPEA Global Private Equity Conference (May 2019)‒ Gender-Smart Investing Summit (Oct 2019)‒ Global Impact Investing Network (GIIN) (Nov 2019)‒ Oliver Wyman Forum
• Academic articles/journals: Harvard Business Review, Insights by Stanford Business, INSEAD Knowledge
• Social media outreach across LinkedIn, Facebook, Twitter, etc.
Requested support
• Include research at events and meetings with asset managers, institutional investors, PE and VC fund managers, etc.
• Disseminate via professional networks • Engage clients on the issue
Design and dissemination For discussion
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