Five reasons why diversity can create value in private debt

In early 2007, I was setting up a new private debt investment team for a major asset management firm. The chief executive officer gave me the hiring budget on one condition: I appoint a minimum of eight different nationalities for the 10 vacancies available. Though the experience of hiring and managing so many different people (at the peak of the market) had its challenges, I became an even stronger believer in diversity than ever before.

Here’s why:

1)      Broader origination network

Different backgrounds of team members mean different school affiliations and alumni memberships (e.g., INSEAD, IESE). It can provide a wider network and access to borrowers, M&A boutiques, and law firms to generate and execute business.

2)      Better investment decisions

The investment world is characterised by unpredictable, even unknown, trends. Because diverse team members have experienced different learning paths, issues, trends and solutions, they don’t think and act alike. Therefore, the team has a lower risk of developing tunnel vision. Sure, discussions may not always be easy and quick, but broader aspects and insights from different angles are brought to the table and deliberated, which ultimately translates to better decisions.

3)      Enhanced risk management

With diverse team members, having a different perspective or opinion does not make you stick out like a sore thumb. This open culture lowers the barriers to speaking up, especially about risks, which is very useful in an industry characterised by herding behaviour.

4)      Practical regional market coverage

Europe is a diverse continent where different languages, skills, and cultural sensitivities can give an important edge when expanding into new markets or dealing with cross-border cultural challenges. The broader skills base can be valuable for shifting focus from one region to another where relative value opportunities are better.

5)      Creative problem-solving

Diversity of thought breeds creativity and drives innovation. The ability to analyse trends from different angles enables teams to address global challenges more efficiently.

While diversity can be achieved by gender, age, education, interests, viewpoints, and aspirations, it is more than just putting different people together and calling them a team. It requires strong leadership support, focus, and careful navigation between cultural sensitivities.

When done right, combining different perspectives creates significant value and even spurs a phoenix moment, as it did to both my organisation and to our investors. I am convinced it was a key factor in enabling us to emerge from that 2007 crisis and making us a successful private debt team.

Gabriella Kindert is a senior banking and investment professional specialising in alternative credit, private markets and the digital transformation in the financial sector.