The private equity industry is continually trying to see around the next corner. PE professionals think of themselves as forward-looking, evidence-driven, and innovative – their success and that of the companies they invest in depend upon it. And yet, in one key area, the PE industry looks very much like its more staid and conservative counterparts around the business world: diversity, equity, and inclusion. According to the State of Diversity and Inclusion Report 2021 by the CVCA and Diversio, representation by women at the senior management/partner level of Canadian private capital firms stands at a meager 10 percent – and that’s only one indicator of the widespread underrepresentation of women and racial and ethnic groups in the industry.
Some PE firms, however, are trying to change the narrative about diversity – and Fengate Private Equity is among the leaders. Fengate Asset Management, which includes Private Equity, Infrastructure, and Real Estate businesses, has put diversity, equity, and inclusion (DE&I) at the top of its corporate agenda in a wide-ranging effort to not only ensure more representation of women and racialized groups at all levels of the organization but also to establish a culture where people of diverse backgrounds, genders and abilities feel welcome. The Firm is already seeing results: half of Fengate’s executive team are women, and a majority of its staff identify as diverse. “We recognize the boundless benefits of a diverse workforce and Fengate’s place in impacting change for the better,” says Darryl Sam, Principal, Investments and Origination at Fengate Private Equity and co-chair of the company’s Equity, Belonging, Inclusion and Diversity (EBID) Think Tank. “EBID addresses both the right thing to do for humanity and the right thing to do to drive great performance in our organization and the portfolio companies in which we serve.”
Substantial and growing industry data supports the business case for diversity. “Companies with greater diversity than average in their management teams have higher levels of innovation and better financial performance, including higher profitability,” notes Kristen Floro, Origination Associate with Fengate Private Equity and a member of EBID. “We know from the research and our own experience that diversity can lead to better decision-making and more effective management.” As well, more diverse companies can more effectively hire and retain staff; in particular, diversity is an important area of focus for Millennial employees, nearly half of whom say they take it into account when considering potential employers.1 And the current popular focus on social justice means that not following through on DE&I creates reputational and, potentially, legal risk for any company.
Because diversity leads to better business results, Sam says, DE&I should be one of the factors firms consider when assessing potential investments. “Companies with strong progression in DE&I are viewed as having a heightened advantage,” he adds. “The over-arching benefit of a diverse, equitable and inclusive organization is that it allows us to widen our perspective.” Like most PE firms, Fengate Private Equity invests in a wide array of businesses that reach diverse customer bases. “If half of all consumers are women, to have 10 percent female representation in a firm’s senior management is short-sighted,” says Floro. “If you’re looking at investments from only a male point of view, then you may be missing out on half the potential market opportunity.”
Part of Fengate’s commitment to diversity is its work engaging industry partners on the issue. Sam sits on the CVCA’s Diversity & Inclusion Committee, which works to foster greater diversity of thought and drive performance in the industry. Fengate is also a signatory to the Institutional Limited Partners Association (ILPA) Diversity in Action initiative, whose goal is to motivate and promote specific actions to increase diversity and inclusivity in private equity. “One of the barriers to change is that while people want to address the issue, many don’t know where to start,” Sam notes. “So, getting involved and creating alliances around DE&I can initiate a positive compounding effect.”
Internally, the most visible aspect of Fengate’s diversity commitment is the EBID Think Tank, launched in early 2021. With representation from all levels of the firm, it is tasked with supporting the formal development of Fengate’s DE&I mission and strategy. Among other programs, it also oversees firmwide inclusion surveys, which managers use both as a listening tool and to set benchmarks. The goal, says Floro, is to establish a culture that “embraces diversity and the different perspectives.”
That applies in particular to HR practices. Fengate conducts regular non-bias training for all staff, including hiring managers, to ensure they understand the impact of bias on hiring decisions and to develop strategies that address and mitigate it. As well, the Firm has innovated ways to create the flexibility needed to be a truly inclusive workplace, and it is working closely with postsecondary education partners to propagate a more diverse pipeline of potential employees.
Tapping a broader talent pool involves looking beyond traditional skill sets when hiring and promoting. “Many investment managers pay so much attention to technical training or abilities that they overlook the skills of other kinds of candidates, and particularly diverse ones,” says Justin Catalano, Managing Director and Group Head of Fengate Private Equity There can and should be more paths to a career in private equity than an education in finance and a first job in investment banking,” adds Catalano.
Floro’s experience provides a compelling case in point. She trained as an accountant and began at Fengate Private Equity in a finance and operations role, but after three years she wanted to take on more client-facing tasks. “I really enjoyed the opportunities to be more involved with businesses and talk to people out in the market,” she explains. So, she approached management and expressed an interest in joining the investment team. “They knew me, they knew my skill set, and they said they were going to give me a chance,” she recalls. “Most private equity funds would have looked at my resume and not have done that.” In the end, Floro took an unorthodox route to private equity, but she has made the most of the opportunity and has brought fresh perspectives to the investment team. “Kristen had all the intangibles that would make her very effective, but could have been easily overlooked on paper,” says Catalano. “Now, her voice and her insights add significant contributions to our work.”
Clearly, the path to improving diversity, equity and inclusion in private equity is not a straightforward one. As Fengate Private Equity’s experience shows, it requires not only commitment but also multilateral effort across the organization. “It’s a continuous journey of adaptation,” Sam says. “But given the demonstrable business benefits and the need to improve the state of diversity in our industry, we think it’s a journey well worth taking.”