Leading a Sea Change in Private Equity

We’re witnessing an exciting demographic and cultural transformation. A sea change impacting whole industries and societies: The rise of female leadership.

For decades, female leaders and entrepreneurs have been fighting to gain access to key capital and leadership positions. Now, global awareness of the positive impact diverse teams have on quality, creativity and bottom line results has finally reached a tipping point. Women-led businesses are increasingly common, and investments in female leadership are expanding and sparking change in companies worldwide.

This sea change is flowing through all facets of the finance industry

Gender- and diversity- focused angel investing is increasing. Female- focused and led venture capital firms are experiencing a powerful surge. Leading investors such as Goldman Sachs are insisting on gender diversity in public company boards, index funds and funds of funds. California is mandating gender diversity on all public company boards.  At last, powerful mechanisms are being put in place to spur gender-conscious investing.

On top of this, BCG reports that women are increasingly owning and controlling wealth in this country—in 2020, 32% of US wealth will be controlled by women. In 2019, Pitchbook confirmed that this combination of wealth and new investment funds had led to an all-time high of 11.5% of VC dollars funding mixed-gender teams.

It’s an incredibly compelling time to be in finance. And I am so energized and deeply proud to see the investment community stepping up to the plate and improving access to the capital and resources smart leaders need to thrive. But while much progress has been made, much more needs to be done to accelerate the pace of improvement.

The reality: private equity is lagging woefully behind the rest of the finance world

I’ve spent the past decade on the leadership team of the Watermill Group, a boutique investment firm specializing in middle market buyouts. We invest in private companies, largely family or entrepreneur owned at the time of exit, who are looking for strategic support to take their business to the next level of growth. Market conditions would seem to be ripe for progress as family businesses are transitioning ownership to daughters and nieces just as frequently as they are to sons and nephews. I’ve been seeing this trend firsthand. Increasingly, Watermill is finding investment opportunities in gender-diverse teams and as a result, 28% of our recent acquisitions have been women owned or led. While this shows some progress, it’s not enough to move the needle. I am still regularly dismayed by the lack of diversity in small to middle market private company investing.

Why isn’t private equity investing in women? 

Perhaps the lack of representation in the investment community is holding the industry back. Last year, Preqin reported 18% of private equity professionals worldwide are women, and less than 10% of senior level positions are held by women. Perhaps the disparity comes down to debt aversion, according to our research, female CEOs tend to avoid debt at greater rates than their male peers.

I suspect it’s a combination of demographic, economic and social factors. In our qualitative research with female entrepreneurs and leaders we heard time and time again that the perceived “old boys club” is uncomfortable and distasteful to many female CEOs who crave respect, integrity, transparency and community from their capital providers.

Let’s widen the path for vital shifts to take hold in private equity

For these reasons, Watermill Group is today launching WMX—an initiative to bring private capital and resources to gender diverse teams. WMX is our firm’s commitment to help accelerate change in private equity by making investments in great teams led by women with a vision to build enduring businesses. We support WMX-funded leaders with a vibrant circle of trusted funders, advisors and partners wholly dedicated to the collective success of all stakeholders.

Personally, the decision to launch WMX begins with our commitment to equity. It is deeply unjust for some entrepreneurs and teams to have fewer opportunities than their male peers to monetize their hard work launching, sustaining and growing businesses. Given the historically superior performance of gender-diverse teams, their lack of access to capital simply makes no sense.  If the private equity industry isn’t speaking to these entrepreneurs or is inhospitable to them, their access to capital significantly decreases. That’s why it is critical to launch a mechanism like WMX that drives investment in great companies with diverse teams, to ensure that all entrepreneurs have a level playing field to access key financial, strategic and corporate resources.

Private equity has been a vital driver of business growth and success for decades. Yet, this platform was developed by men and for men. Those men included my father and grandfather, and I have great respect and admiration for the industry’s legacy. Moving forward, I want to build on their success and find ways for private equity to keep pace with today’s sweeping demographic and cultural shifts. That’s why our team is striving to re-envision the private equity experience and create an environment that is more transparent, inclusive and welcoming to everyone. Put simply, we want to reinvent private equity so that it works for all CEOs.

To that end, I am honored to launch WMX and commit to using our seat at the table to make more space for more companies with high growth potential. Together, we can improve access, inspire change and create success. Will you join us?

February 12, 2020 |