Jason Howard on DEI in Private Market Investing
Managing Director, Co-Head of Private Equity Diverse Managers
Jason Howard : They are sending a positive message with their allocations. Investors have done research and looked at their own portfolios and realized that, in general, diverse managers have performed just as well or better than the broader manager universe. Thus, investors are more are open to expanding their networks as they recognize that their existing channels have been too “closed” and they may have overlooked opportunities in the past.
LPs are also aware of the many studies indicating diverse teams make better decisions – and they are applying that research in their own firms and promoting it in others. As part of our investment decisions, we’re asking managers about diversity of their staff, DEI policies, and future plans. We monitor and get updates from managers about changes in these areas – we often use it as a way to engage with managers.
Jason Howard : First, there is a belief that investors must make concessions on returns when investing with diverse managers. In fact, many diverse managers have outperformed their non-diverse counterparts, as recent studies from industry organizations like NAIC and the Knight Foundation have shown.
In addition, some believe that the universe of diverse managers is a small one, but at GCM Grosvenor, we follow approximately 800 diverse managers in private equity alone. Many also believe that diverse managers are typically small and/or venture capital managers, but the median fund size of diverse managers with whom we invested in 2021 was over $800 million, and less than 10% of our commitments to diverse managers are in venture.
Some also believe that diverse managers are new to private equity. Again, not true. We talk to firms with professionals who have been in the industry for 10, 15, 20-plus years. In many cases they were high performers who left their previous firms to be entrepreneurs and launch their own funds.
Jason Howard : If we’re being fiduciaries for clients and stakeholders, we must ensure we are seeking out best ideas, people, and opportunities, and not relying on existing networks (social, professional, and personal). And looking at the data and studies I mentioned, I believe it should certainly be a priority.
And we feel there’s a sense of urgency. At GCM Grosvenor, we use the term “early and helpful” when referring to diverse and other emerging managers. By being early, we can build strong strategic relationships with managers as they mature that can provide real benefits now and down the line. For example, being involved in a manager’s early-stage fundraising may provide us access to co-investments or secondary investments later, or we may achieve preferential economics.
But it is not a one-way street; we strive to provide managers with “non-investment” benefits as well. These include providing introductions to LPs, giving advice on operational and back-office processes like operational due diligence, and raising managers’ visibility through conferences. For example, GCM Grosvenor hosts Consortium, which brings together diverse and women managers with institutional investors and their consultants once a year. It is an efficient way of making connections and building relationships.
Jason Howard, Managing Director, Co-Head of Private Equity Diverse Managers, GCM Grosvenor, will speak at Private Markets Forum 2022, taking place on April 25 – 27 at Fairmont Château Laurier, Ottawa.