Diverse investment teams bring different perspectives to decision-making, which in turn spurs innovation, a major catalyst behind growth and value creation in the private markets. Numerous studies have borne out the link between diverse-led teams and business results.
Why Does Diversity Matter?
Source: Peterson Institute, Catalyst, BCG, 2020.
ROE in Fortune 500 companies with at least three female directors
Net profit margin at companies in which 30% of leadership roles are filled by women
EBIT at companies with above-average diversity in their leadership teams
Innovation at companies with above-average diversity in their leadership teams
However, despite their ability to offer investors diversification, compelling risk-adjusted returns, and exposure to undiscovered talent – diverse funds still receive a disproportionately low share of the overall capital allocation pie each year.
DIVERSE & EMERGING INVESTMENT FOCUS
HarbourVest has long provided support to diverse-led managers. In 2016, we took our commitment to new levels with the addition of a team of investment professionals that has been exclusively focused on investing with diverse and emerging managers for more than two decades.
Backed by a wide network and an established sourcing process, our Diverse and Emerging investment team reviews more than 150 opportunities each year and manages or has advised on $3.3 billion in capital focused on this market segment.
HarbourVest managing directors Craig Fowler, Amanda Outerbridge, and Sanjiv Shah recently spoke with Private Equity International on the topic of diversity, and why we believe strongly in advancing diversity and inclusion across the private markets industry.
GP BEST PRACTICES: FOCUSING ON DIVERSITY AND INCLUSION
As both a leading GP and LP, HarbourVest has a distinguished vantage point from which to observe, learn, and potentially invest in managers that we believe are truly committed to practicing diversity and inclusion. Two managers we work with, EagleTree Capital Partners and Clearhaven Partners, were kind enough to share their stories on how they have made diversity and inclusion a central strategic focus and a competitive differentiator.
GP BEST PRACTICES: ADDRESSING SOCIAL INJUSTICE
Social injustices – consciously or unconsciously – course through all aspects of life today, from voting rights to the provision of health care to race relations. COVID-19 and the historic economic downturn it fueled made these divides wider. But the pandemic also cast a long-overdue spotlight on these issues, inspiring increased awareness and a wave of initial action that will hopefully lead to permanent, structural change. The true test for the private equity industry will be whether we use the events of 2020 as a flashpoint to renew and strengthen our commitment to enact real change. We know of at least two managers who are committed to passing that test.
Georgian is focusing on systemic bias in technology, which is becoming more important as the use of artificial intelligence, or AI, becomes more widespread. And Lightspeed Venture Partners has had great success with its Scout Program, which seeks to stimulate investment in underserved communities by recruiting diverse talent from outside the Silicon Valley bubble as they enter the venture capital industry.
Emily Walsh Lead Investor
Following much discussion with its team, Georgian shared its Action Plan on Racism with its staff and LPs in June 2020. The Plan outlines tangible actions that are tied to Georgian’s investment strategy and strengths.
“We at HarbourVest are so impressed by the leadership position our GPs and industry thought leaders have taken with respect to social responsibility and justice. We enthusiastically support their efforts and also recognize our own responsibility as an industry leader to prioritize and promote the “social” part of ESG in entrepreneurship, awareness, responsibility, and justice."
Scott Voss Managing Director Primary Investments
Since 2016, Lightspeed has operated a successful Scout Fund. Lightspeed’s 2020 Scout Program brought together Black, Latinx, Indigenous, and Pacific Islander communities who will receive support and capital as they join the venture industry. Lightspeed Partner Mercedes Bent, who has been one of the driving forces behind the Scout Program, shares some insights on the initiative.
Mercedes Bent Partner