A new study carried out by HEC Paris Business School and MVision Private Equity Advisers found that gender-diverse investment committees of private equity fund managers have experienced comparatively higher returns against their male-only peers.
The study audited performance data on 2,454 deals executed by 51 different fund managers across 220 investment vehicles, and found that women make up a relatively small portion of executive decision-makers in private equity, occupying just 9.4% of senior positions at private equity firms globally.
HEC Paris Professor Oliver Gottschalg found that companies in the top quartile for gender diversity on executive teams were on average 21% more likely to outperform their peers, and 27% more likely to exhibit substantial value creation.
There’s also a strong correlation in emerging markets between female-inclusive fund executive teams and higher returns. Also, Gottschalg found that the failure rate of private equity deals was substantially reduced when women held consequential positions in deal-making processes.
“The finance industry is often used as an example of a male-dominated industry, where women struggle to achieve positions of responsibility. While only 10.81% of deals in private equity are led by female investment managers today, the research proves that gender diversity increases investment performance,” Gottshalg said.
Specifically, his research found that gender-diverse investment committees outperformed all-male committees in alpha, TVPI, and IRR by 7%, 0.52%, and 12%, respectively. This is in part due to a broader base of perspectives and the subsequent avoidance of more blind spots.
The data also found that women tend to focus more on investments in biotech and IT, and less on industrials, business services, and technology, media, and telecom (TMT) industries.
Professor Gottschalg is a strategy professor at HEC Paris Business School and academic Dean of the TRIUM global EMBA, and authors the yearly HEC-Dow Jones private equity rankings.