Investing in diversity
Since 1982, HarbourVest has placed a high value on diverse teams and the perspectives they bring to our decision-making process, which we know from experience helps drive better investment outcomes for our clients.
HarbourVest Partners is in the top-10 most inclusive PE firms, according to Equality Group
As of March 2022. Equality Group’s Inclusive Top 20 PE & VC Index is a comprehensive evaluation tool that analyses fund performance on inclusion, diversity, and equity over the past 12 months. The Index includes 400 global private equity and venture capital groups each with a minimum of $1bn in assets under management. The data is sourced from multiple publicly available information sites, including fund websites, social media channels, published articles and reports. The index covers six core categories: leadership, actions and policies, work-life balance, inclusive team, explicit I&D support and additional public information. Within these categories, there are a total of 22 inclusion and diversity sub metrics. There are a total of 45 points available in the Inclusive Index. Equality Group has applied variable weightings to individual categories to reflect the most impactful data points across the core categories, as informed by the latest academic research.
“At HarbourVest, we are committed to diversity, equity, and inclusion in every aspect of our business. I’m encouraged by the foundation we have in place and excited about the initiatives and work that lie ahead.”
Kelley King Chief Diversity, Equity, and Inclusion Officer
Today, our leadership must be multi-directional if we’re really going to move the needle on diversity, equity, and inclusion and keep pushing for systemic improvement over time.
Internally, we took a big step forward in 2022 with the hiring of Kelley King, our first Chief Diversity, Equity, and Inclusion Officer. Please see our Inaugural Diversity, Equity, and Inclusion Report, which provides an update on our latest activities and initiatives.
More broadly, as a leading global LP, we have the ability to influence for change. As an experienced, well-known leader and participant in the emerging and diverse manager markets, we utilize our platform to maintain the widest possible funnel and strong deal pipeline with GPs seeking capital for their first, second, and third-time funds.
HarbourVest was proud to be recognized as Diversity & Inclusion Leader of the Year – LP by The Real Deals Private Equity Awards in 2021.
LP Diversity & Inclusion Leader of the Year - 2021. D&I category nominations are put forward by Real Deals’ panel of LP judges who then deliberate on the winner. This award recognizes excellence in the LP communities with respect to companies who have made a real difference to improving D&I within their firm, at portfolio company level and in the wider investment community. For more information on the award and methodology visit: https://lnkd.in/eNWkjBAF
Managing Director Sanjiv Shah works with newer and diverse managers every day, seeing firsthand the many hurdles they encounter in the fundraising process. Below he shares his thoughts on the current state of play for these managers and action items for allocators.
Diverse performance and ownership
Diverse private equity funds, as represented by the National Association of Investment Companies (NAIC) Private Equity Index, have outperformed the Burgiss Median Quartile in 76.5% of vintage years from 1998 to 2020, with 40% of these funds producing top-quartile IRRs during this period.¹
This consistent outperformance, however, is not translating into increased ownership. In 2019, firms owned by women and ethnic minorities managed just 1.3% of the nearly $70 trillion in total US assets. At the end of 2021, those firms owned only 1.4% of more than $82 trillion in total assets.²
1 Source: NAIC 2021: Examining the Returns: The Financial Return of Diverse Private Equity Firms.
2 Source: Knight Diversity of Asset Managers Research Series; Knight Foundation; Bella Private Markets, 2021.
The ugliness that showed its face in 2020 opened peoples’ eyes to the inequalities and social injustices pervading so many parts of society. I am of the belief that progress starts with awareness.
In the time since we’ve all wondered how we can do things differently. Looking inward, are we providing opportunities for diversity to succeed? Looking outward, how can we build more bridges to capital for more diverse managers and portfolio companies? So far, the increased focus has largely benefited the established diverse-led managers. As the data shows, our industry is not making a dent in the original objective despite evidence that diverse and emerging managers continue to outperform.
Percentage of US-based AUM managed by diverse-owned firms across asset classes
Source: Knight Diversity of Asset Managers Research Series; Knight Foundation; Bella Private Markets, 2021.
I think there are two primary reasons for this disconnect. First, diversity targets are set on a smaller percentage of capital, meaning diverse-led managers are competing against each other for a much smaller slice of the yearly allocation pie. The saying ‘you have to be twice as good to get half as much’ seems to apply. Second, it’s really difficult to unseat an incumbent manager that is performing well. Capital has to be freed up in order to make new allocations, which means making tough decisions. Adding to the challenges, it is often in choppy market periods like these when the underserved portions of communities tend to suffer the most financially. Doubling down on our efforts in this environment is the only way progress will continue and our achievements to date won’t be tarnished. As change agents, we need to stay on task, follow through, and hold ourselves accountable.
To allocators, here are my recommendations:
- Have decision-makers in place that reflect society. Greater diversity in firm leadership and ownership roles will attract diverse founders and open up previously underrepresented markets. Organizations like AAAIM, NAIC, New American Alliance (NAA), and National Association of Securities Professionals (NASP), are hard at work supporting this drive for expanded representation on both the funder and founder sides.
- Dedicate specialist resources that put a lens on diverse and emerging managers so that these opportunities do not get crowded out by more established players.
- Be conscious of any unconscious bias: how are you analyzing diverse-led performance?
- Don’t stop holding firms accountable for diversity and inclusion
- Be “disruptive” in advocating for purposeful change; make the tough decisions
