Private Equity Firms Reevaluate Priorities

Private equity executives who gathered at the RFK Compass Investor Virtual Summit in October described a year of challenges and opportunities that have inspired them to reflect on and reevaluate their priorities.

On the bright side, private equity firms’ worst-case scenarios did not come to fruition, and many of their portfolio companies weathered the pandemic better than expected. Working from home, holding virtual investor meetings, and readjusting due-diligence processes went more smoothly than anticipated, and opportunities to deploy capital have been plentiful due to the dislocations created by the pandemic’s impact on the economy.

But at the same time, business closures and shutdowns have put millions out of work, disproportionately affecting lower-income earners and communities of color. Those who remain employed often face health hazards at their jobs or additional family life burdens as a result of working from home. Being a responsible investor during such a tumultuous time requires something more.

“Given everything that’s transpired and what’s happened, it’s been an opportunity for us to check ourselves,” said Lindsey King, head of investor relations at Crestview Partners, a $9 billion buyout firm based in New York.

King said Crestview examined its portfolio companies to ensure that their employees could work safely during the pandemic, as many didn’t have the luxury of being able to work from home. “It’s given us an opportunity to take a step back and maybe rebalance priorities,” she said.

The protests that followed the recent killings of George Floyd and Breonna Taylor also prompted a desire among institutional investors for private equity firms to tackle racial inequities, King said. One sign of that growing demand is the Racial Justice Investing coalition’s statement of solidarity and call to action to address systemic racism. Since the group released its statement in June, it has obtained commitments from dozens of institutional investors, advisors, nonprofits, and other stakeholders. The RFK Compass Investor Action Plan for fighting racial and economic injustice is another mobilization effort.

Investors at the summit described the various actions they are taking to address these inequities, ranging from increasing the number of minorities and women on their portfolio company boards to fostering more diverse talent.

For example, the $25 billion New York private equity firm Dyal Capital Partners has partnered with the nonprofit OppNet to offer internship and mentorship opportunities for college students from disadvantaged economic backgrounds. The goal is to develop a pipeline of talented individuals who can rise through the ranks and eventually provide a more diverse pool of candidates for senior positions in the industry.

“What we’re really focused on now is expanding the funnel of talent at the bottom,” said Sean Ward, a managing director at the firm.

Private equity executives at the virtual summit agreed that more diversity benefits the industry, such as by promoting differing viewpoints in investment committee meetings. But the impact of private equity firms’ investments on the communities they serve is also receiving renewed attention this year as economies struggle in the wake of the pandemic.

“We care very, very deeply about how those investments are impacting jobs and opportunity. And I think that has become even more real for private equity fund managers now,” said Kathlika Fontes, director of investor relations at Washington D.C.-based Grain Management.

The telecommunications-focused private equity firm has seen the need for its portfolio companies’ services surge this year as schools pivoted toward online learning. The importance of telecommunications during the pandemic has underscored the firm’s ability to impact economic opportunity through its investments, Fontes said.

“If it wasn’t clear before, it’s abundantly so now,” she said.