Gender diversity: ‘A complex business issue’, not an ‘aspirational target’

Gender diversity continues to be an issue – one that seems to have been talked about more recently, with many limited partner advisory firms and LPs themselves beginning to make this an important part of due diligence when scouting for potential general partners. Private Debt Investor polled different players in the private debt ecosystems on how to recruit, retain and promote women in the asset class.

What do you find is the most effective way to recruit and retain women for careers in private debt?

Sylvia Owens, Aksia, global private credit strategist: In order to recruit and retain women for careers in private debt, it is important to have an inclusive culture based on meritocracy, a platform that allows for personal growth where individuals can be challenged and role models that can mentor the next generation.

Sharmila Kassam, Employees’ Retirement System of Texas, deputy chief investment officer: Retaining women in private debt, like retaining women across the investment industry, revolves around focusing on the skills and cognitive diversity in thinking that will enhance an investment program or a business model. This only works though with leadership at the top as the catalyst.

What steps can you take to ensure the promotion process is fair?

Maria Boyazny, MB Global Partners, founder and chief executive: In order to do that, they have to have a specific program. I think there are a handful of firms that are trying to do that; the rest are a little more talk than action. I believe without the institutional investor community taking a stand and pushing for it, change will be slower.

Lindsey McMurray, Pollen Street Capital, founder and managing director: It’s recruitment and very simply equality of opportunity and marrying up opportunities. We are strong believers in, at the simplest level, meritocracy. As a firm, we are always asking ourselves if we are being as successful at this as we could be. It requires that commitment to openness, and it takes a bit of time.

Owens: Ensuring that the review process is broad enough to include a complete assessment of an employee’s contribution is critical. I think that women tend to understate their achievements and be naturally less promotional, which makes it important to have multiple voices in the room.

Eunice Han, Willis Towers Watson, alternative credit manager research: We’re trying to understand the promotion process and the compensation process for the managers we work with. Different asset managers take different approaches; some are more qualitative, some are more quantitative. The process has to be transparent and communicative; the more junior staffers understand their promotion path, the fairer they think it is.

Where has the private debt space been in terms of gender diversity and where are we headed?

Boyazny: I think that the asset class is unfortunately not very diverse at all. There’s been a lot of talk, but we’d love to see some concrete actions by the marketplace overall. I’m seeing little baby steps but we’re ready for bigger steps. Some of the state pension funds have been [putting an emphasis on diversity], but it’s still a handful.

McMurray: If you look at financial services broadly, there’s discussions about it certainly being male dominated, and it’s the same in private debt. We’re beginning to see a number of positive initiatives; in the last couple months, we’ve talked to multiple industry bodies about the topic. There is a significant momentum, specifically in the last year or so.

Han: We’re taking a lens of wanting our managers to focus on more diversity outside of just private debt. We care about it for our managers across all asset classes and all strategies. It was always part of our process but now we’ve formalised it as a part of what we call a culture review. It’s meant to be a separate topic with our investment managers. The culture review and diversity are not meant to be a small part of diligence.

What do you look for when investing or recommending a manager to investors?

Owens: Given the increasingly competitive landscape, we are particularly interested in GPs with a differentiated edge or area of specialisation. In addition, we are paying attention to evidence of slippage in underwriting standards and/or style drift, especially with GPs who have raised larger and larger funds in a short period of time.

Kassam: A lot of managers are talking about being able to execute across different strategies despite what they have done in prior credit cycles. I don’t see enough of the discussion of what it takes to make it through the downturn. There’s not enough in-depth discussion early on about the downside of markets by these managers.

What’s your approach to investing in the current market environment?

Boyazny: We have a tracking list of a couple of hundred stressed and distressed names. The average pricing on the names we are tracking is down quite a bit since early 2018 but, in many cases, is not enough yet to reflect the true intrinsic value of the assets. For special situations private equity, we found the best opportunities have been more idiosyncratic. For instance, we bought a company from a family that got left at the altar by a strategic buyer.

McMurray: We are focused on assets and markets which provide a high level of security. Our strategy and approach has identified markets that [give us that] high security and where you’re being paid for effort rather than risk. Specialty finance is an area that has been under-allocated and therefore it’s a market that has benefited from a supply-demand imbalance.

How should firms think about diversity?

Kassam: The more we talk about inclusion and diversity, we almost make it seem like an aspirational target rather than what it is: a complex business issue. You need to address the ability to have different people in the room rather than you with a team with similar backgrounds that may not produce the most innovative and effective results. When people are able to do this, they’re being competitive.

McMurray: It takes a while for these changes to really take root, and I do think on the GP side there has been a move where it is more about managing and reporting numbers and presenting a case. We’ve always had an absolute belief that diversity [among leadership] makes better decisions. You have to move it from measuring numbers to a way of making a better business.

Han: How diverse is the investment team? How diverse are the decision makers of the firm? We’re not only looking for male-female breakdown but also at things like ethnicity/race, language, background, education, age. Having diversity on the team brings in different viewpoints. When you look at the pure numbers, it’s rarely going to be equal. I think you have to dig deeper into what their plans are and solutions for that problem.