There is no guarantee that the C-suites of private equity-backed companies will become more diverse in the coming years, despite the issue being front and center for both private equity firms and their investors.

Globally, women make up 8% of CEO positions at private equity portfolio companies, with the greatest level of gender diversity being among CFOs, at a still marginal 19%, according to S&P Global Market Intelligence data. This has been driven largely by firms insisting that candidates for these roles have previous experience working at a private equity-backed business, which has created a repetitive and uniform talent cycle.

There is now a "level of severity" to this long-standing issue, according to Mikael Stelander, head of private equity at Stanton Chase, who advises firms and portfolio companies on C-level recruitment.

In the past year, limited partners have insisted on diversity criteria for private equity portfolio companies, a trend driven by LPs on the U.S. West Coast, Stelander said; now, about 90% of its hiring mandates or briefs require long and short lists to include female candidates.

The trend is positive, and will improve, but Stelander does not predict a substantial change over the coming five years. "The numbers are going to be better but not substantially better, unfortunately, because you're dragging the history with you."

Stanton Chase also keeps track of women who have the experience to fit private equity C-level roles. It is the case that all recruits, regardless of gender, may not be ready to leave their current roles. "They're not willing to even talk to us, so we just wait for the right moment to approach them and offer another opportunity. So when you have less women, that doesn't make it any easier either."

DRAX, which sources C-suite talent for portfolio companies, has developed a behavior-based methodology to address the barrier that is the requirement that candidates have experience working in a private equity-backed business. It evaluates those who will enjoy and be successful working in such a business, which is different to working for a listed business, Graham Roadnight, CEO of The LCap Group, the brands of which include DRAX, said.

One-fifth of short lists compiled by DRAX across 2021 and 2022 have comprised females, and 40% of its placements were women. "You know that the appetite in the market for bringing in more diverse, gender diverse candidates is there because, obviously, there's a higher proportion of placements being made from the work that we're doing."

The lack of diversity at the portfolio company level is reflective of the situation at the firm level, where there is a lack of ethnicity and gender representation, said Sasha Jensen, CEO and founder at Jensen Partners, which advises private equity firms on their internal hires. Before you can "put on the accelerator and push forward into looking at the portfolio companies," you have to get it right at the firm level, Jensen said.

For the private equity firms, attitude is not a barrier to searching for diverse talent. "I think the pressure is about returns; you want to do the very best that you can do to get those returns," said Gail McManus, managing director and founder of PER, also a recruiter for internal private equity firm talent. If buyout houses feel confident in someone who has done the role before, there is no driver to try something new.

Some larger firms have introduced diversity mandates. The Carlyle Group Inc. secured environmental, social and governance-linked credit facilities in the U.S. and Europe in 2021 tied to its goal of ensuring 30% of directors on the boards of its controlled companies are diverse within two years of ownership. It also launched its Diversity, Equity and Inclusion Leadership Network in March, which will meet annually with CEOs in its portfolio companies.

The issue is top of mind for smaller private equity firms, too, which all lead on diversity when speaking with Jensen about hiring talent. Of the 30 searches the recruiter was carrying out at the time of the interview, 28 were diversity focused, something that will hopefully have a "trickle-down effect" into portfolio companies.

Given the asset class's push to source and retain diverse talent as well as the launch of some firms' public metrics, if there has not been a "fantastic" uptick in gender representation statistics across the next five years, "then it was just a moment and not a movement," Jensen said.

"If some of those [metrics] haven't been met by 2023, 2024, we have a problem because you know we're not getting there. And I think it's a very important job of all of us to keep scrutinizing this data year in, year out, and make sure that we're on the right track," Jensen said.