The Limited Partner Perspective on Championing Diversity

by Insight Onsite

Insight Partners’ inaugural Women’s Tech Leadership Summit for female portfolio company leaders and our partners in the broader technology ecosystem, intentionally included Limited Partners (LPs) as part of the conversation. We wanted the audience to hear our LPs' perspectives on gender diversity and wider trends in environmental, social and governance (ESG) programs.

The 300 attendees heard Donna Smolens, Senior Advisor, facilitate a dynamic conversation with Jenna Shen, Vice President in the Alternative Investments & Manager Selection (AIMS) Group within Goldman Sachs Asset Management, and Chris Ragazzo, Senior Portfolio Manager at APG. 

In their roles, Chris and Jenna have a bird’s eye view of managers across asset classes, and the trends in ESG practices.    They shared with us trends in the industry, how their firms promote diversity and inclusion, as well as best practices for managers. Although not a focus of the conversation, both LPs mentioned continued excitement about software given the secular tailwinds driving software adoption in businesses, both within and outside of the technology sector.  

With respect to the core topic of diversity, the answer was clear – it is an imperative for strong returns, and LPs are committed to supporting diversity within their own organizations as well as the investing ecosystem.

Key points are summarized below.

First, LPs see a business case for diversity.

Diversity drives diverse dialog and decision making which creates potential for outsized returns.   Our panelists noted that early studies have begun quantifying the impact of diversity in fund and portfolio company performance. For example, a 2019 study by the World Bank found that gender diverse investment teams generated returns that were 10 to 20 percent higher than those that were not gender diverse.  More studies and larger data sets will likely prove this further in the years to come.  As a result, diversity is not just a “check the box.”  LPs and investment managers should not focus on diversity for diversity’s sake but to compete in a dynamic market.

The panelists confirmed that ESG is a serious factor in LPs' decision-making about investment managers, and that low prioritization of ESG may be correlated with other characteristics or challenges with a manager.

Second, there is work to do globally but particularly in the North American market.

European managers, in general, are ahead of North American managers with respect to ESG accountability; recognition of the need for diversity started several years earlier in Europe.  As a result, more European firms have robust institutionalized practices, and anecdotally, it feels as though the conversation is more front and center with regulators and firms.

What should North American managers do to close the gap? 

The panelists noted that measurable goals are the key to success. In their experience, the most successful managers have formal programs with measurable targets that are monitored regularly, along with committed senior sponsorship.  

Also, they encouraged managers to think proactively about the pipeline for future leaders not just the current statistics. Venture Capital and Private Equity investments are long duration commitments – often more than 10 years.  As an LP, they want to partner with firms that will be able to maintain diversity and mentor diverse future leaders to rise through the ranks, rather than firms that are seeking short-term solutions.

Third, a broad definition of diversity is emerging.

Insight’s summit was intentionally focused on fostering female leadership. However, the panelists noted that they apply a broad definition to diversity, one that takes into account all forms of diversity including minority ethnic groups, as well as physically, socially or economically disadvantaged groups, among others.  

As Limited Partners look to partner with the most successful managers, diversity is on track to become table stakes rather than a differentiator.   

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