Results: 2023 Alpha Equity Survey on Diversity, Equity, Inclusion, and Accessibility (DEIA)

The financial services sector has long struggled with a lack of diversity across talent, leadership, portfolio selection and management, and vendor partnerships. Just 1.4% of $82.24 trillion USD in assets under management (AUM) is managed by diverse-owned firms, and that figure has remained fairly stagnant over the past decade. In recent years, the industry has sought to diversify employment opportunities and has made public corporate commitments to recruit and retain diverse employees. Yet the financial industry continues to face challenges to ensure fair representation of women and minorities.

RFK Compass Investors has long sought to champion racial and social equity, gathering the world’s largest institutional investors and asset managers to explore how the investment sector can be an agent of change.

In response to the gaps of monitoring within the industry, RFK Compass Investors launched its inaugural Diversity, Equity, Inclusion, and Accessibility (DEIA) Survey in partnership with Lenox Park Solutions, Inc., an industry leader in leveraging technology and data science to promote equitable capital allocation and better investment outcomes.

This survey, conducted in early 2023, represents our commitment to create an annual baseline and benchmark for the diversity within the private equity sector as part of a long-term project to affect positive change within the industry. We aimed to focus on not just the diversity of the employment overall, but specifically on who makes up the ownership of a firm’s capital and the teams that make investment decisions. This data will help inform the best practices to push the financial industry forward towards more diversified and equitable access to capital.

More than three dozen firms, employing more than 18,000 professionals, were surveyed. Each respondent was given a Lenox Park Impact Score (“LPI” Score, a standardized scoring metric based on Lenox Park Solution’s proprietary assessment methodology based on a firm’s survey responses on their gender and race data around its Ownership, Leadership, and Total Workforce).

Across the participating firms, the average LPI score was in the 71st percentile of asset managers in the Lenox Park Solutions benchmark universe, indicating that the firms in our RFK Compass network are among those most engaged in the work of diversifying their firms.

• When assessing Ownership in particular, broken down into gender and racial diversity, on average the firms surveyed had especially high scores compared to the industry.

• This data also indicated that while gender diversity at the Ownership level was very high, gender diversity at leadership level lags behind the other metrics.

• The firms that worked to better identify and track diversity within their own firms tended to score higher.

• It takes more than one individual to create a culture of diversity. The data showed that having two or more diverse individuals leads to much better outcomes in terms of overall firm diversity. By having multiple stakeholders advocate for race and/or gender diversity, there is a “trickle down” effect to more junior staffing levels, and leads to generally more diverse team outcomes.

In addition to diversity statistics, our survey also asked firms about a variety of diversity-related policies and business practices in order to understand the relationship between these policies and the overall diversity score of the firm, including within investment decision-making professionals. These questions included whether firms had a formal, written DEIA Policy or Initiative, whether compensation was tied to DEIA goals, whether the firm has a required DEIA training program for employees, amongst others. We found that while having these policies may help enable diversity, they are not sufficient to guarantee a firm’s diversity.

• In total, 84% of managers had a formal, written DEIA policy in place and 75% tracked the diversity of the owners of portfolio companies or management of asset managers during the investment process. However, only 21% of firms have tied any bonus or discretionary compensation to DEIA performance.

• Of our top ten performing firms, 8 of those had implemented the majority of the key policies that we analyzed. All ten of these top firms had a written, formal DEIA policy or initiative.

• Simply having these policies alone were not enough to guarantee high performance and diverse outcomes. More must be done to ensure and advance diversity in firms.

Our results lend support to the value of having a community of investors learning from and sharing best practices with one another. In our survey, we found firms share a number of innovative practices to achieve their DEIA goals, including general employee benefits that support a diverse workforce. The highest performing respondents shared that they engaged in the following efforts:

• Discussing and suggesting diversification of the board of directors for portfolio companies;

• Setting quantifiable and measurable hiring goals (e.g. “hire at least 30% diverse team members for our professional team by December 31”);

• Working with professional organizations that promote the hiring and retention of diverse candidates, including Association of Asian American Investment Managers (AAAIM), New America Alliance (NAA), National Association of Investment Companies (NAIC), Southern California Minority Supplier Development Council (SCMSDC), Private Equity Women Investor Network, (PEWIN), and the Women's Private Equity Summit;

• Collaborating with nonprofits that are also dedicated to promoting diversity, such as the Robert Toigo Foundation (TOIGO) and Sponsors for Educational Opportunity (SEO) Alternative Investments;

• Providing employees with competitive compensation and employee benefits to support the needs of a diverse workforce, including quality health insurance, on-site medical care, flexible remote work policies, paid vacation and sick leave, retirement savings program, fully-paid parental leave and part-time schedules upon return to work, fertility healthcare benefits, childcare services, etc.

As we look ahead to 2024, we are launching our second annual DEIA survey to the RFK Compass Investors network in an effort to track the industry’s progress and drive further improvements. All responses are confidential and we are confident that this data and measurement is a necessary step that will allow us to best create a more equitable financial services industry.