Private Capital Gets Performance Lift With Gender-Balanced Teams

(Bloomberg) -- If private equity and venture capital firms need a reason to hire more women, consider this: gender balance gives investment teams a performance edge.

That’s a finding of a new study by the World Bank Group’s International Finance Corp.

“Gender-balanced funds realized excess net internal rate of return of 1.7 percentage points greater than male- or female-dominated funds when controlling for vintage, geography, and strategy,” according to the study released Thursday. “Our research finds these benefits likely include enhanced investment decision making and deal sourcing.”

Investment firms are coming under increased scrutiny for their lack of diversity, particularly in the wake of harassment allegations in the industry. The study shows that among general partners, only 15 percent of senior investment teams are balanced and almost 70 percent of teams are all-male.

Institutional investors are applying some pressure on firms to make changes to their ranks, according to the study.

It found that about 65 percent of limited partners such as endowments and pension funds see gender diversity of a firm’s investment team as important when allocating money. But only 25 percent of them ask about the subject during due diligence.

“More inclusive and diverse workplaces empower employees to deliver their best, leading to better business outcomes,” Bill Ford, chief executive officer of private equity firm General Atlantic, said in the study.

Other highlights from the study include:

  • Women make up 11 percent of senior investment professionals in private equity and venture capital firms in emerging markets, which is a percentage point higher than in developed markets
  • Seven percent of private equity or venture capital is invested with women entrepreneurs among portfolio companies, skewing toward early-stage investments
  • Female partners invested in two times more women entrepreneurs than men

IFC partnered with asset manager RockCreek and consulting firm Oliver Wyman to produce the report. They gathered data from more than 700 funds and 500 portfolio companies.

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