Racism In Private Equity

This market chooses who gets funded, who gets into high paying roles, and who sits on boards that drive strategy. Bias at any point compounds across careers and portfolios. If racism shapes access to capital and senior seats, the effect reaches far beyond one firm or one fund. That is why we need facts, not slogans.

What The Numbers Show

Control of capital sits at the core. A large U.S. market study led by the Knight Foundation found that about 1.4 percent of total assets in its sample were managed by diverse-owned firms as of September 2021. The sample covered more than eighty trillion dollars. That gap is not a rounding error. It is structural.

Inside private equity, senior decision rooms do not reflect entry level cohorts. McKinsey’s private markets work shows that representation is stronger at analyst level, then falls hard by the time people reach managing director and investment committee seats. Their 2024 review notes that women held about 12 percent of investment committee seats in 2022, and related research points to slow progress for ethnic and racial minorities. Committee seats decide price, structure, and selection, so low representation there has real consequences.

The performance story does not excuse the gap. The National Association of Investment Companies reports diverse-owned private equity managers matching or beating standard benchmarks over long windows. The 2023 update shows net IRR and MOIC outcomes that meet or exceed Burgiss medians across many periods. This is a multi year dataset, not a marketing line.

The corporate link is clear as well. Repeated studies find that companies with more ethnically diverse leadership teams are more likely to outperform on profitability. That does not mean every firm with a diverse team will beat the market, yet it cuts against the claim that diversity hurts results.

Where Bias Shows Up In The Workflow

Recruiting And Early Career Screens

The entry path runs through a narrow set of schools, analyst programs, and referral networks. Labor market audit studies show bias even before interviews. The well known résumé experiment by Bertrand and Mullainathan found that identical résumés with names perceived as White received far more callbacks than those with names perceived as Black. Private equity hiring sits in that same labor market, and quick screens based on signals and referrals carry bias into who gets modeling tests or headhunter intros.

Inside firms, representation drops as seniority rises. Analysts come in with more diversity, yet promotion gates are subjective and often informal. When the group that allocates carry and seats on investment committees lacks diversity, the cycle locks in.

Fundraising And Gatekeeping

Allocation habits reward incumbents. During slow fundraising years, many asset owners move toward managers they have known for years. That squeeze lands hardest on first time and smaller funds, which include a large share of diverse owned firms. Industry reporting in 2024 described a cooling of commitments to diverse and minority owned funds as part of a wider flight to familiarity. Market reviews also note that smaller and newer managers struggled while scaled platforms took a larger share of flows.

Deal Flow, Due Diligence, And Boards

Bias shapes which deals get airtime, who gets a banker call back, and whose memo feels bankable. Portfolio value plans also suffer when leadership teams and boards repeat the same profile. The link between leadership diversity and stronger odds of financial outperformance matters here, because sponsors shape board slates and C suite hires.

System Features That Keep The Gap In Place

• Opaque data. Many managers and asset owners do not publish consistent diversity metrics. ILPA released a Diversity Metrics Template and keeps pushing standardized requests, but adoption varies by region and strategy.
• Networks that double as filters. Reliance on informal referrals keeps funnels narrow. When the same few headhunters and banker circles drive intake, the new class mirrors the old class.
• Fundraising moats. Re ups crowd out new relationships during down cycles. First time and smaller funds wait longer or never close, even with competitive records.
• Legal headwinds and caution. Public fights over DEI create risk aversion. Some firms re frame goals and focus on race neutral process while still measuring outcomes; others freeze and drift backward.

Pushback Claims, And What The Evidence Shows

“There Is A Pipeline Problem.”

Entry level teams are more diverse than senior ranks. The drop is not explained by a lack of capable candidates. It tracks to promotion gates that rest on subjective calls, exposure to live deals, and who gets credit in carry pools. Market data also shows senior hiring can move faster when firms choose to look wider. The point is simple. Talent exists. Processes decide who advances.

“Diverse Managers Will Hurt Returns.”

The NAIC dataset does not back that claim. Diverse owned private equity managers match or beat mainstream benchmarks across many vintages on net returns. Corporate studies point the same way for operating companies. There is no built in penalty in the numbers that justifies today’s allocation gap.

“Fiduciary Duty Means Avoiding This Topic.”

Fiduciary duty means pursuing risk adjusted returns with sound process. If homogeneous rooms miss markets or risks that diverse teams catch, that is a process failure. Asking managers to publish consistent data and improve how they hire, promote, and staff boards is part of a prudent review.

What Works For Asset Owners

What Works For General Partners

• Publish A Baseline. Report headcount, promotion rates by cohort, turnover by cohort, and portfolio governance. Use a recognized template so LPs can compare across managers.
• Fix Recruiting Mechanics. Add feeders beyond the same two banks and the same headhunters. Pay interns and pre MBA hires. Bring in programs that connect HBCUs and other underrepresented communities to private markets with real investment track roles.
• Make Promotion Auditable. Use structured reviews, consistent rubrics, and track who gets live deal exposure. Publish anonymized internal stats so leaders see the gaps.
• Standardize Deal Intake. Allow ideas from wider networks to enter the funnel and reward people when those ideas convert.
• Use Board Seats To Open Doors. Require diverse slates for portfolio boards. Tie operating partner goals to widening senior talent pools.

Why This Matters Beyond Fairness

Private equity influences millions of jobs. If racism limits who gets to run capital or sit on boards, the wealth gap widens. Communities lose companies that might have been backed. Talent walks away. The résumé study shows how bias can block entry at the very start. Leave that untouched and the carry pool stays closed to whole groups for another cycle.

The State Of Play In 2024 to 2025

There has been some movement. Investment committee representation edged up in recent years. More firms are sharing data. ILPA’s network keeps adding signatories and publishing guidance. At the same time, market stress and legal noise push many teams to retreat into old habits. Reports in 2024 described a pullback in commitments to diverse managers and a tilt to large, familiar platforms. That is the moment to keep measuring, keep publishing, and keep tying leadership accountability to results.

Research Gaps That Still Need Work

• Granular race and ethnicity data by level and seat. Many disclosures blend groups into one “diverse” bucket. That hides specific problems.
• Board and C suite reporting at portfolio companies. Sponsors control those levers. Reporting should show how rights are used.
• Allocator reporting on manager rosters. Asset owners should publish aggregate shares invested with diverse owned firms, even if they cannot list names.
• Repeatable performance studies. NAIC’s work pushed the debate forward. More datasets across regions would add depth.

Practical Checklists

Closing View

Racism in private equity is not one act by one person. It is a set of habits and structures that keep capital and decision power in the same circles. The facts we do have are blunt. Diverse owned firms run a tiny share of assets. Senior seats are still less diverse than entry level benches. Fundraising swings toward incumbents in tough years. Performance studies do not justify the gap. The fix is process. Measure. Publish. Open promotion and board doors with clear rules. Allocate to new managers with the same discipline used for incumbents. Do that with scale and the market changes, not because of charity, but because disciplined investors hate missing good deals.

Sources

• Knight Foundation — Diversity of Asset Managers: Industry 2021.
• NAIC — Examining the Returns (2023 update).
• McKinsey — Diversity Wins and later diversity updates.
• McKinsey — Global Private Markets Review 2024.
• McKinsey — The State of Diversity in Global Private Markets 2022.
• Bertrand & Mullainathan — “Are Emily and Greg More Employable Than Lakisha and Jamal,” American Economic Review.
• ILPA — Diversity Metrics Template and Diversity In Action updates.
• New Private Markets — reporting on LP pullback from diverse and minority-owned funds (2024).

This page is for professional audiences. It summarizes public research and does not give legal advice. Sources reflect published studies and industry reports as of the date of writing.