February 6, 2013
Interviewed by: David Snow
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Building a Diverse Private Equity Firm

The private equity industry collectively controls a highly diversified portfolio of private companies, and yet most private equity firms themselves are not overly diverse by way of team-member backgrounds. Today, through the efforts of advocacy groups, in partnership with a growing number of GPs, professionals from underrepresented backgrounds are increasingly finding roles in private equity, say Martina Marshall-Edwards, Director of Alumni & Alternative Investments Programs at Sponsors for Educational Opportunity (SEO), and Yokasta Segura-Baez, a Principal at Pantheon Ventures.

In an insightful and candid conversation with Privcap, Marshall-Edwards and Segura-Baez explain how private equity compares with other industries with regard to its mix of professionals, detail how high-pedigree industry leaders often fall back on established peer networks when recruiting, and tell how SEO is partnering with firms like Pantheon to channel underrepresented young professionals into internship positions. The two also share the stories of their own backgrounds and how they launched careers in financial services despite having limited initial connections to the industry.

UPCOMING EVENT: The SEO Fourth Annual Alternative Investments Conference on March 22nd in New York features insights from limited partners and emerging and established fund managers, increasing access and education for more than 300 professionals from backgrounds traditionally underrepresented in the sector.  Learn more here.

About SEO

Sponsors for Educational Opportunity (SEO) is a nonprofit organization with a 50-year history of providing talented and motivated young people from underserved and underrepresented communities with access to educational and career opportunities.  SEO has played a pivotal role at the intersection where diverse professionals meet opportunity, recruiting and mentoring underrepresented students of color for summer internships with more than 50 partner investments banks, corporate law firms and other leading global companies each year.

A few years ago, with the support of the SEO Limited Partner Advisory Council and others in the LP community, SEO created its Alternative Investments industry program to increase diversity and expand access for professionals from backgrounds traditionally underrepresented in the sector.

In 2009, the SEO Alternative Investments Fellowship Program launched with Kohlberg Kravis Roberts & Co. and TPG Capital as inaugural partners.  The Fellowship educates, mentors and provides unique industry exposure for first- and second-year analysts, forming a bridge between diverse talent and career opportunities in private equity and other areas.

The annual SEO Alternative Investments Conference began in 2010 to promote diversity and expand SEO’s educational outreach.  It offers more than 300 early and mid-career professionals of color a day of insights from industry leaders and exposure to investors for aspiring, new and established fund managers.  Panel discussions with sector leaders, limited partners and fund managers bring diverse professionals from many different asset classes together for unique networking and deal-making opportunities, while fostering valuable exposure and interaction for participants.

CCMP Capital Advisors and Pantheon Ventures have also partnered with SEO to identify talent for their undergraduate summer analyst programs, providing a pathway for talented individuals to gain access to the middle market industry. www.seoaltinvestments.org

The private equity industry collectively controls a highly diversified portfolio of private companies, and yet most private equity firms themselves are not overly diverse by way of team-member backgrounds. Today, through the efforts of advocacy groups, in partnership with a growing number of GPs, professionals from underrepresented backgrounds are increasingly finding roles in private equity, say Martina Marshall-Edwards, Director of Alumni & Alternative Investments Programs at Sponsors for Educational Opportunity (SEO), and Yokasta Segura-Baez, a Principal at Pantheon Ventures.

In an insightful and candid conversation with Privcap, Marshall-Edwards and Segura-Baez explain how private equity compares with other industries with regard to its mix of professionals, detail how high-pedigree industry leaders often fall back on established peer networks when recruiting, and tell how SEO is partnering with firms like Pantheon to channel underrepresented young professionals into internship positions. The two also share the stories of their own backgrounds and how they launched careers in financial services despite having limited initial connections to the industry.

UPCOMING EVENT: The SEO Fourth Annual Alternative Investments Conference on March 22nd in New York features insights from limited partners and emerging and established fund managers, increasing access and education for more than 300 professionals from backgrounds traditionally underrepresented in the sector.  Learn more here.

About SEO

Sponsors for Educational Opportunity (SEO) is a nonprofit organization with a 50-year history of providing talented and motivated young people from underserved and underrepresented communities with access to educational and career opportunities.  SEO has played a pivotal role at the intersection where diverse professionals meet opportunity, recruiting and mentoring underrepresented students of color for summer internships with more than 50 partner investments banks, corporate law firms and other leading global companies each year.

A few years ago, with the support of the SEO Limited Partner Advisory Council and others in the LP community, SEO created its Alternative Investments industry program to increase diversity and expand access for professionals from backgrounds traditionally underrepresented in the sector.

In 2009, the SEO Alternative Investments Fellowship Program launched with Kohlberg Kravis Roberts & Co. and TPG Capital as inaugural partners.  The Fellowship educates, mentors and provides unique industry exposure for first- and second-year analysts, forming a bridge between diverse talent and career opportunities in private equity and other areas.

The annual SEO Alternative Investments Conference began in 2010 to promote diversity and expand SEO’s educational outreach.  It offers more than 300 early and mid-career professionals of color a day of insights from industry leaders and exposure to investors for aspiring, new and established fund managers.  Panel discussions with sector leaders, limited partners and fund managers bring diverse professionals from many different asset classes together for unique networking and deal-making opportunities, while fostering valuable exposure and interaction for participants.

CCMP Capital Advisors and Pantheon Ventures have also partnered with SEO to identify talent for their undergraduate summer analyst programs, providing a pathway for talented individuals to gain access to the middle market industry. www.seoaltinvestments.org

David Snow, Privcap: We are joined today by Martina Edwards of Sponsors for Educational Opportunity or SEO. And Yokasta Segura-Baez from Pantheon Ventures. Welcome to Privcap today, thanks so much for being here.

We are talking about a very important topic, that’s diversity and specifically diversity within the private equity industry. Private equity is known for many things, but being overly diversified from sort of a background perspective’s not one of ‘em. So I’m wondering, given your experience in this subject and, ya know, being able to, and I’ll start with Martina, be able to place private equity in the context of many other industries, how diversified is it or undiversified is it, again, relative to maybe other types of industries?

Martina Edwards, Sponsors for Educational Opportunity: Sure, David, that’s a really good question. I would say that private equity is not as diversified as other industries, especially when you think about financial services and, when benchmarked against the larger banks that have been in the public eye for longer periods of time, private equity is an industry in my eyes that started out tapping into capital sources from family offices and ultra high net worth individuals, and this, to me, is an audience that has not typically or traditionally been representative of the most diverse audiences. But that’s really just the tip of the iceberg.

If we think about it, there are no formal studies specifically about diversity in PE, but the Department of Labor has a study that talks about financial analysts broadly that says 80% are white, 14% are Asian, 6% are black, and 4% are Hispanic. What that tells us is that the industry is overwhelmingly white and male-dominated. I don’t think that any leader of a private equity firm would argue that their employee population is not as representative of the broader population. So the discussion that SEO likes to have is, “We understand that diversity’s important. What can we do to work together to change and really bridge that gap between opportunity and talent?”

Snow: Maybe a question for Yokasta, and obviously, I want to hear about both of your experiences sort of discovering and building a career in this industry, but why do you think it is that people within industries, especially relatively newer industries like private equity, and despite the fact that they might believe themselves to be huge fans of meritocracy, might often hire people from similar backgrounds to themselves as opposed to maybe taking the extra steps and the extra effort to really vet people from backgrounds that are not like themselves? Why do you think that is?

Yokasta Segura-Baez, Pantheon Ventures: Yes, I will say that, in private equity, for instance, the general partners, it’s not that they are against women or minorities, I think that, as you said, in many cases, it’s a relationship-driven industry. So that’s why they tend to do business with people that they trust and they feel comfortable with. Perhaps they went to the same school, so that’s where having the relationships come to play

Edwards: I’d love to weigh in on that if I can.

I think that, life in general, right, we gravitate towards what’s most familiar, whether it’s common interests, backgrounds, universities attended, ya know, where you’re from. And the problem that can happen is that, when this starts to creep into the recruiting process, at certain businesses, I call it microinequities. But it becomes a barrier to entry for folks because it has unintended consequences and leads to less diversity. With private equity being such a highly referral business and one that has high demand for very few positions, it’s really important to make sure that the process that are in place are and are diverse and include inclusion.

Snow: So I’m interested maybe starting with Yokasta in your personal backgrounds and how it is that you’ve made your way into the private equity industry albeit from different vantage points. Yokasta, was it a typical career path for you to make your way into private equity, or did you not know about the industry before the opportunity came to you?

Segura-Baez: Yes, absolutely, so, no. I didn’t know about the industry before I came into the industry, so I do relate a lot to being an underrepresented minority in this industry. I came to the industry by pure chance, I came to the United States 11 years ago from the Dominican Republic where I’m from. I’m a lawyer by training, and I just happened to find an opportunity in a private equity firm, where I had studied in the administration side. And then evolved within the firm to become an investor relations professional, it’s a small firm. I was able to get a lot of access to it, so I didn’t know about it before.

I got fascinated after I learned about the industry. I was given the opportunity by the CEO of that private equity firm that happens to be a woman, and it’s a very successful woman in the industry. So with that, I moved to Pantheon, where I also got great support by the senior management of the firm to continue in bringing awareness of the diversity issue in the private equity industry. The good thing is that it’s something that I care about, but also the company and the firm cares about not only because we are social responsible with our firm itself. But also because our public pension plans that we manage care about this issue.

Snow: That’s a very important factor, right, that, if you don’t really know, and none of your friends are in an industry, you don’t have any mentors that are in a certain industry, you tend not to know about it and tend not to be recruited into it, right?

Edwards: No, David, it’s a great point, and my story is not much different than Yokasta’s. I’m originally from Alabama. I knew nothing really about Wall Street. I was a high achiever doing well in school, knew that I wanted to be successful, and I had positive people in my life. But I had no family and friends really who had been to Wall Street who could tell me about the career path and that it would be an incredible opportunity. SEO was my foot in the door. I started working with Merrill Lynch on the floor of the New York Stock Exchange.

It was a combination of really having managers that were supportive of me while I was there; people who took a vested interest in my success; hard work on the job that led to me being the first African-American female broker from Merrill Lynch on the floor of the exchange. At the end of the day, what companies will have to do is figure out how to retain diverse talent once it gets there because it is very difficult on a daily basis to come into an environment and work with people who don’t look and feel like you. But you have to insert yourself into conversations, and you have to assimilate. S  o it’s really good to have some structure in place from a company that is supportive of you and fosters learning once you get there.

Snow: Why don’t you talk a bit about your organization SEO and specifically how it is partnering with private equity firms like Pantheon to improve the way that they reach out to and retain underrepresented employees in the firm?

Edward: Absolutely, I would love to talk to you about the Pantheon relationship, if you would give me a moment, I’d like to tell you a little bit about SEO as an organization and then delve into the partnership. SEO for nearly 50 years has been at the intersection of diverse talent and opportunity. Through our SEO Scholars program and an SEO career program, the latter of which focuses on high-achieving undergraduate talent, placing them in internships throughout the summer, we have about 50+ partners in that program. A few years ago, coupled with the support o’ the limited partner community, as well as our own alums, we were able to establish the Alternative Investments program, it’s a fellowship program, it has three components, the first part.

The fellowship program really works with the first and second-year analysts that are currently in a banking role, giving them training, most importantly mentorship, and education about the industry so that they are better positioned when that interview time comes to actually get a chance to transition into the sector. The other piece that we said, “Okay, well, this is the tip of the iceberg. How do we continue to make an impact?” Our broader initiative was an alternative investments conference, so we have an annual conference that brings together mid-career professionals, new fund managers as well as established fund managers, in the room with investors to talk about, for networking, to have a dialogue about, what are the trends in the industry, how do you continue to push forward on different efforts?

Then I’ll talk now about the third leg of that stool, which is, we said, “What we do and what we’re good at doing is figuring out how to tap into the next generation of talent. The pipeline.” We found that the Audax Group, who was our first middle market partner, CCMP Capital Advisors, and now Pantheon all had a similar interest in creating what I call organic growth. Because the typical entry point for private equity is usually after a two-year analyst program or post business school. This is really taking a different angle and saying, “How do we develop talent? And how do we educate talent at the undergraduate level?” And that’s very unique, and I’m really excited about it.

Snow: So that, at the point the typical point of entry for private equity, you have someone who’s very well prepared and totally understanding of what the private equity, ya know, business plan is?

Edwards: Absolutely, it’s what we talked about earlier in terms of having that exposure and that access and really knowing what the industry’s about and why it’s important to be prepared for it.

Snow: So, for example, Yokasta, how are you working with SEO on, like, what kinds of programs or initiatives you have in place at Pantheon?

Segura-Baez: Yes. Absolutely. At Pantheon, we have been at the forefront of most of the private equity initiatives. We have signed The Principle for Responsible Investments, we were one of the first managers of managers to do so. We have endorsed the ILPA Principles of Private Equity, so it’s not a big surprise that we also care about diversity. The SEO Partnership happens to be a great fit for us because, as Martina mentioned, we do not only care about pre-MBA students, we thought that it was important to go deeper and lowered and perhaps attract more sophomores and juniors in colleges, where we can really spend some time training them, creating this awareness of the private equity industry, and then they can make better decisions and probably perhaps more intelligent decisions whether or not to pursue a career in the private equity industry.

So, if it wasn’t for organizations like SEO and others, it would be very difficult for us and GPs to access great talent. Because one thing is not only bringing diversity into the industry but also is, you want the best in class because this is a very competitive environment, and they have to be well prepared, they have to have, what we call it, the killer instinct to be able to perform well and really compare well with others that are not coming from the same background.

Snow: I want to ask you about a very important ingredient in the private equity industry, and that’s the money. So the money comes from the limited partners. GPs care what limited partners think. Can you talk about the limited partner view on diversity in private equity and how that is sort of informing the initiatives that both of you are involved in?

Segura-Baez I believe that, when we speak about diversity, limited partners played the biggest role. First of all, they have the money. If you go and look at the composition of the public pension plans, the majority are comprised by women and minorities and minority trustees. So there’s not a big surprise that they want to allocate capital to minority-owned or emerging managers as well, so, for them, it’s a big, big subject. If  you look at the larger end of the public pension plans, they have already done so. Like CALPERS, for instance, or public pension plans in Illinois, they have created those program for emerging managers and for minority-owned firms.

This important to LPs because they wanna make sure that minorities professionals get a fair shake and that they also have the opportunity to manage money on their behalf.

Snow: It’s important to track the progress of underrepresented people in your firm. But it’s also important to track the progress of what they’re doing, right?

Segura-Baez: Yes, absolutely, so, from one side, you have the qualitative analysis to see what those partners and what is the culture of those partners in reference to minorities. And quantitatively by tracking, where are they hiring? Because I can tell you that some LPs ask their general partners, “Tell me how many woman and how many minorities you have in your firm,” and it’s very easy to come back with a large number of women and large number of minorities in all the administration side of the business. But, when it comes to partners and the people that are making the big decisions and being involved in the big deals, maybe you don’t find them, anymore.

Snow: What can a firm do that wants to be more proactive in building a more diversified firm? Yet has failed to do so with their existing setup?

Edwards: Right. I think what the firms need to do is take a deep dive into their processes and figure out how to change it. Because what typically happens is that you will recruit from those investment banks someone has to have a resume that’s they spent time at a prestigious investment ban and then those investment banks typically recruit at 10 to 20 core schools. So you’re tapping into this small pool over time for your talent, and you’re assuming that all diverse individuals have an opportunity and the means to get to those schools. So they have two options, and one is to change the process, dedicate the time and the resources to really making it happen. Or they can work with organizations like SEO, who already have the skill, the background, and the competency into figuring out how to do this, and we already have the resources behind it.

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