Gender-balanced investment firms outperform mostly male – and mostly female – firms

ImpactAlpha, March 19 — Too few women in investment decision-making hurts private-equity and venture-capital returns,  according to the International Finance Corp. But so, too, does too few men. Venture capital firms with between 30% and 70% women outperform both mostly male and mostly female firms, the IFC reports in “Moving Toward Gender Balance in Private Equity and Venture Capital.” Gender-balanced firms achieve internal rates of return 1.7 percentage points higher on average. For emerging markets funds that generate average returns of 8%, that amounts to a 20% increase in yield for investors.

Of course, too many women is a problem few investment firms face. Women occupy only 10% of senior positions in global private equity and venture capital firms. Only 15% of senior investment teams are gender-balanced; nearly 70% are all-male. Areas for improvement:

  • Recruitment. Less than half of investment firms are succeeding in bringing in and promoting more women. “Retention of junior female employees is essential for future progress in closing the gender gap within the leadership.” Most firms report they lean heavily on networks, referrals and “cultural fit.” In male-dominated firms, that can stifle diversity.
  • Due diligence. Nearly two-thirds of limited-partner investors say gender diversity important to them when investing, but only one-quarter ask about it during their due diligence processes. General partners say limited partners rarely ask them about diversity.
  • Portfolio selection. The median gender-balanced portfolio companies generated a 64% increase in valuation between funding rounds, about 10 percentage points higher than gender-imbalance companies. Women-led enterprises attracted less than 3% of global venture capital in 2017.

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