Diversity, Equity and Inclusion: A Perspective on Gender, Class and Other Biases in African Private Capital Strategies*

As an investment professional, I was first introduced to the concept of cognitive and emotional biases in the context of investment decision-making while I was studying for the CFA exams. The topic was related to developing investment policy statements for individual and institutional investor. This has remained a relevant reference as I get to develop, refine and execute investment strategies at work.

Building on this, I developed a deeper socio-political awareness of how discrimination based on gender, class and other biases influences investment processes and outcomes when I formally became a student of African Politics and International Economic[1] Relations at the Johns Hopkins School of Advanced International Studies (SAIS) in Bologna and Washington D.C . The multidisciplinary MA program challenged how I had previously viewed the world, and was deeply transformational.

In the time after this program, when I returned to working as an investment professional in Lagos with new perspectives, I was inspired to explore my thoughts by writing about the negative impacts of discrimination based on biases. This article sets out some of my thinking, refers to emerging solutions and focuses on private equity strategies where I have several years of experience.

Gender-based discrimination: Outcomes related to a system that seems to empower one gender over another for developing, leading and executing business strategies are indicated by the following data:

• only 10% of senior investment professionals in private equity and venture capital globally are women
• only 15% of emerging markets senior investment teams are gender balanced (i.e. women make up 30–70% of senior investment teams)
• only 7% of deals done by male investment partners were in women-led business, female investment partners invested 12% in women-led businesses
• gender-balanced senior investment teams achieved 10–20% higher net returns than non-gender balanced teams
• portfolio companies with gender-diverse leadership achieved valuation increases that were 20–25% higher than non-gender diverse companies from entry to subsequent rounds/exit

The necessity of gender-balanced teams was a strong theme of the last Global Private Equity Conference (GPEC), hosted in 2019 by the International Finance Corporation (IFC) in association with the Emerging Markets Private Equity Association (EMPEA). I got to attend the 2019 GPEC, before the ‘new normal’ we presently live in, and this is the source of the data referenced.

The data shows that private equity investment sourcing and screening processes benefitted from gender-balanced hiring by fund managers. This is also curiously tied to increasing investments in women-led business. This makes me question whether the ‘coincidence’ is related to why I can think of a number of men within my social circles who have accessed capital from external investors but I am struggling to think of one female I know well who is not still bootstrapping.

Class discrimination: Non-inclusive deal sourcing practices implicitly (or sometimes openly) lead to class-based discrimination where the companies that access the private equity pipeline come from ‘exclusive clubs’ of businesses led by friends and family. As social circles are typically made up of individuals with similar historical income levels, this indicates negative impact on economic mobility.

Implementing good practice in investment screening, monitoring and value addition results in positive investment outcomes, and positive externalities also. Widening the funnel beyond friends and family by using online deal sourcing tools, for instance, is expected to improve outcomes.

It is reasonable to expect that the additional rigor of expanding access will lead to increasing investments in more competitive entrepreneurs, business models and geographies that are currently underserved, except it really is the case that the ‘exclusive club’ is the cream of the crop.

Other biases: It goes without saying that the behavioural biases of individuals could significantly impact institutional outcomes if left unchecked. This is where instituting good governance and practices such as hiring teams that are balanced across gender, class, and other affiliations, including age, where applicable, comes in.

Over the course of my career, I have been fortunate to work with teams where I have seen the positive impact of implementing good practice. I consider hiring diverse teams to be a first step in this regard, while encouraging/empowering team members to make contributions is a necessary continuation of the journey.

At an increasingly poignant moment in the history of race relations, racism is arguably the most tragic manifestation of prejudice. While my career has been focused on markets where the historically globally oppressed race is the majority, these discriminatory influences have led to assumptions that people, products and policies of lighter-skinned origin are superior.

Although capital allocation to sub-Saharan Africa’s private capital markets is still largely driven by non-domestic players, practices that prioritise the selection of businesses solely based on the founder/business model being from a geography that is considered better due to racial demographics should be worked against.

Thinking about biases in other settings, I remember attempts by a Nigerian security official to slam the door in my face after the older white male I was visiting our technical partner’s office with, Mr. JV partner, had walked in. It seems the ‘gatekeeper’ had assumed that I did not belong in the meeting. I also remember Mr. JV partner’s light-hearted jokes about feeling conspicuous while he was in Lagos, perhaps to soften the blow of a few micro-aggressions I had become more aware of while we travelled locally and internationally. This reminds me how pervasive these biases can be.

But, hope for reducing these influence on private capital processes and outcomes is not lost. Expanding deal sourcing and rigorous application of documented data-driven screening practices should promote improved outcomes in this regard also. The same would apply for any ethnic/inter-country discrimination within the African continent and its countries.

On a (hopefully) lighter note, as I recall my ‘Nigerian accent’ being made fun of in neighbouring Ghana during a business meeting, I realise that I might have to stop ‘reminding’ my Ghanaian brother from SAIS that the population of Lagos is similar to the size of his home country after sharing this article.

[1] I am also grateful for my Covenant University (Nigeria) B.Sc. Economics degree which was an earlier opportunity for developing technical and life skills.

*Originally posted on LinkedIn on the 18th of July, 2020, and re-shared here, with some edits for easier reading.