Romney’s LBO World Is Boys’ Club With Few Top Women
Rhonda Ryan didn’t meet many other women when she broke into the private-equity business 15 years ago. Today, she’s still the rare female executive in an industry pushed into the spotlight by the presidential campaign of Mitt Romney, co-founder of buyout firm Bain Capital LLC.
“I’ll often have meetings with a group of fund managers where I’ll be the only female in the room,” Ryan, who manages more than $1.3 billion of assets at PineBridge Investments in London, said in a telephone interview.
At nine of the 10 largest U.S. private-equity firms, women account for an average 8.1 percent of managing directors and senior executives, the highest-ranking and best-paying jobs, according to data compiled from the companies and their websites. The comparable figure for the country’s six biggest investment and commercial banks is 30 percent, while women make up 13 percent of the senior ranks at 10 of the largest traditional-asset managers.
Bain, which Romney ran for 15 years until 1999, counts seven women among its 87 managing directors and senior executives, or 8 percent.
The dearth of women at the top of private-equity firms hasn’t been an issue in the campaign, where Romney, the Republican nominee, has faced questions about his role in cutting jobs at companies controlled by Boston-based Bain and the preferred tax rates on buyout profits. Bain, which Romney ran for 15 years until 1999, counts seven women among its 87 managing directors and senior executives, or 8 percent.
“In business, I mentored and supported great women leaders who went on to run great companies,” Romney said Aug. 30 in his speech at the Republican National Convention in Tampa, Florida, where he formally accepted the party’s nomination for president.
Romney trailed President Barack Obama among female voters 42 percent to 50 percent in an Aug. 23 Gallup poll, which showed the former Massachusetts governor leading among men 50 percent to 42 percent. Michele Davis, a spokeswoman for the Romney campaign, declined to comment on the percentage of women in the private-equity industry, where Romney earned the bulk of his estimated $250 million fortune.
Low levels of diversity have hurt the industry by limiting investment opportunities and leaving executives surrounded by like-minded decision makers, according to investors and corporate-governance experts who have researched the subject.
“Private equity is a boys’ club,” said Katherine Phillips, a professor at Columbia Business School in New York. “We find that diversity is beneficial when people need to dig deeply into information and make innovative decisions. Ultimately, the industry is missing out on something it otherwise could have if it were creating an environment where diversity could thrive.”
Warburg Pincus LLC, the New York-based buyout firm run by Charles Kaye and Joseph Landy, has three women among the 69 executives at the managing director level or higher, or 4.3 percent, the lowest rate among the big firms. New York-based KKR & Co. (KKR), whose co-chief executive officers are cousins Henry Kravis and George Roberts, is second-lowest at 5.6 percent, with four women among its 71 top employees. Hellman & Friedman LLC follows at 6.3 percent, or one woman out of 16 senior managers.
“We have focused on attracting and retaining talent of all backgrounds and perspectives,” Kravis and Roberts said in an e- mail. “We are particularly pleased by our pipeline of professional women and look forward to recruiting even more diverse talent in the months and years to come.”
Ed Trissel, a spokesman for Warburg Pincus, couldn’t be reached for comment, and Kelly Smith, a spokeswoman for San Francisco-based Hellman & Friedman at Abernathy MacGregor Group Inc., declined to comment.
“We have many initiatives in place that are helping Bain Capital make progress on this important issue for the industry,” said Charlyn Lusk, a spokeswoman for the firm at Stanton Public Relations & Marketing. Bain -- which at 8 percent has the third-highest proportion of female executives, slightly below average -- visits undergraduate and graduate schools every year to recruit and educate women about the private-equity industry, Lusk said.
Carlyle Group LP (CG), whose chief financial officer, Adena Friedman, joined the firm last year from Nasdaq OMX Group Inc., has the highest proportion in the group at 14 percent. The Washington-based firm has 26 women at the managing director level or higher, out of 181 executives, the data show. Blackstone Group LP (BX), the biggest buyout firm by assets, follows at 12 percent, with women comprising 36 out of 292 executives.
“We have always sought to bring in the best people regardless of race or gender,” David Rubenstein, Carlyle’s co- founder and co-CEO, said in an e-mail. “It’s good business and it’s helped the firm, and will always be a priority for us.”
Rounding out the top 10 are Providence Equity Partners Inc. with 7.7 percent, Apollo Global Management LLC (APO) with 7.5 percent and Cerberus Capital Management LP with 6.8 percent. TPG Capital, the Fort Worth, Texas-based firm run by David Bonderman, doesn’t list top executives on its website and declined to say how many women held senior positions.
Melissa Mandel Kvitko, a spokeswoman for New York-based Apollo at Rubenstein Associates Inc., declined to comment. Representatives for Providence Equity, which is based in the Rhode Island capital, and New York-based Cerberus said they couldn’t immediately comment.
Carlyle in 2009 created a fellowship program with the Robert Toigo Foundation to attract female and minority business- school graduates to the industry, saying it will commit $1 million over four years to the program. Managing director David Marchick became chairman of the Oakland, California-based foundation this year.
One of the reasons Carlyle formed the relationship with Toigo was to encourage other private-equity firms to do the same, Marchick said in an interview. Fellows spend six months at Carlyle, three months at a company owned by the firm and three months with a fund investor, also known as a limited partner.
Among the firm’s female managing directors is Janine Feng, the Hong Kong-based deal maker who with Xiang-Dong Yang co-led Carlyle’s most profitable transaction in its 25-year history. Carlyle in 2006 led the investor group that agreed to take a 25 percent stake in China Pacific Life Insurance Co., a unit of China Pacific Insurance (Group) Co. (2601), for $3.3 billion yuan ($520 million). The investment was converted into a stake in the parent company a year later, and then into Pacific Insurance shares in 2009.
Since then, Carlyle has reaped more than $4 billion in profit by selling its stake in Pacific Insurance.
Buyout firms aren’t big enterprises compared with the companies they acquire. Blackstone, which oversees $190 billion in private equity, real estate and other assets, has 1,580 employees. The companies it owns employ about 700,000 people. Hilton Worldwide Inc., the hotel company Blackstone bought in 2007 for $20 billion, employs 140,000.
The reach of private equity is vast, with the industry owning companies that contribute about 8 percent of U.S. gross domestic product, according to an estimate by Environmental Defense Fund Inc. The industry held assets valued at $3 trillion at the end of 2011, with $1 trillion of dry powder, or capital ready to be invested, according to data from London-based research firm Preqin Ltd. Well-known companies controlled by buyout firms include Toys “R” Us Inc. (TOYS) and J. Crew Group Inc.
In 2011, a private-equity leader topped Bloomberg Markets magazine’s Finance 50, an annual ranking of the best-paid CEOs at the largest U.S.-based financial companies by market capitalization. KKR’s Kravis was awarded $30 million in salary and other compensation, followed by co-CEO Roberts, who earned $29.9 million. The ranking didn’t include dividends from the executives’ stock ownership in their firms.
Banking compensation ranked lower, with JPMorgan Chase & Co.’s Jamie Dimon earning $23.1 million, BlackRock Inc.’s Laurence Fink getting $21.9 million and Goldman Sachs Group Inc.’s Lloyd Blankfein receiving $16.2 million. There are no women on the Bloomberg Markets list, which used regulatory filings, proxy statements and data compiled by Bloomberg.
Blackstone’s Stephen Schwarzman ranked 48th on the list, though the 65-year-old took home $213.5 million when including distributions from buyout funds started before Blackstone went public in 2007 and cash dividends from his ownership of the company’s stock, according to regulatory filings. By that measure, Kravis and Roberts received $94 million each in 2011 and Carlyle co-founders Rubenstein, William Conway and Daniel D’Aniello received a combined $413 million, filings show.
Most of the compensation awarded to buyout executives, including those at the managing director level, is in the form of carried interest, or an asset manager’s slice of investment profits. Schwarzman alone took home almost $400 million in 2006, almost all of it in the form of so-called carry from profitable fund investments.
The process of identifying investments among a wide range of industries and geographies can be improved with greater diversity, including in gender and background, among the decision makers, according to Jeffrey Pfeffer, a professor at Stanford Graduate School of Business and the Rock Center for Corporate Governance.
“It’s like saying, ‘I want you to be a good investment manager, but we’re going to confine you to only looking at 60 percent of the universe of stock,’” Pfeffer said in a phone interview. “The private-equity companies are foreclosing themselves access to 100 percent of the talent pool.”
Joan Solotar, a senior managing director responsible for shareholder relations and strategy at Blackstone, said diversity among investment managers is necessary for arriving at the best decisions for the firm and its investors. Solotar, 48, is the highest-ranking woman at New York-based Blackstone, which she joined from Bank of America Corp. in 2007.
“Different people approach investment decisions with varying risk tolerances, analyses and intuitions,” Solotar said in an interview in her office overlooking Manhattan’s Park Avenue. “You want people poking as many holes in the investment analysis as possible throughout the investment process to get the best result.”
The next step of buyout investing -- helping run the portfolio companies -- could also benefit from diversity, according to Ryan, who oversees the private-equity group in Europe for PineBridge, which was spun off from American International Group Inc. (AIG)’s asset-management business. Funds in which Ryan invests own interests in 400 companies.
“Companies’ customers are very diverse, and therefore you need to have diverse views to understand what your end-customers want,” Ryan said. “Part of private equity is building companies and building them for financial success. Diversity would be an additional benefit at that stage.”
The question on the minds of academics who study diversity in private equity is: Do firms hire fewer women or do fewer women want to enter the buyout industry?
“Historically, there haven’t been many women in the industry, so if you don’t see anybody at a firm who looks like yourself, you might choose not to go in that direction,” said Phillips of Columbia Business School. “This results in a self- fulfilling prophecy, where people don’t seek it out because they believe they aren’t going to be successful in that environment.”
Blackstone last year started the Blackstone Women’s Network, an internal group that provides networking and informal mentorship for female employees through speakers and dinners in the firm’s offices around the world. The company for the first time will hold a recruiting session this year at an all-women school, Wellesley College in Massachusetts, said Solotar, who played a leading role in establishing the firm’s networking group.
The world of private equity also isn’t the most flexible for women with family commitments, according to Ryan, who has two children. More women in the industry may choose to pursue roles in investor relations or at funds-of-funds rather than working for a fund manager, on the deals side of transactions, she said.
“Doing deals is highly time-critical,” said Ryan. “You have to be prepared to put in the hours at the time when the deal needs to be done.”
Blackstone’s Solotar is the sole woman on the firm’s management and executive committees, which have seven and a dozen men, respectively. A mother of two, Solotar said her own mother encouraged her to keep her career in finance -- as head of equity research at Bank of America’s investment-banking division, and then at Blackstone -- saying it would be difficult to return to a managing director-level position if she left to raise her children.
A report published last month by the Credit Suisse Research Institute found that companies with women on their boards rewarded shareholders with corporate performance and share-price returns that are more stable than those at comparable companies with all-male boards. Net income growth at companies with female board representation averaged 14 percent over the past six years, compared with 10 percent at those without a female director, according to the study.
The Credit Suisse study, which examined gender representation on boards of directors, relied on the same dynamics of group decision making that can be applied to teams making investment choices, such as those in private-equity firms, said Columbia’s Phillips. Specifically, diversity among decision makers forces them to think more critically because they recognize different perspectives will surface and they will have to make their cases more strongly, according to Phillips.
“The people who are already there -- the men, in the case of private equity -- start to think harder, have more creative ideas and process things more thoroughly,” Phillips said. “This is the benefit of diversity: it will make the men better to have more women in the room.”
Sandra Horbach, head of the global consumer and retail buyout group at Carlyle, has seen the benefits in action. Horbach ensures her team, which invests in industries in which women make about 80 percent of purchasing decisions, always has female deal makers making key decisions alongside men. Their investment in Dunkin’ Brands Inc., the operator of Dunkin’ Donuts and Baskin-Robbins restaurants, reaped $1.8 billion in profit for the firm and its two private-equity partners.
“Private equity is very much an apprentice-type of business, and it requires diversity to remain competitive,” Horbach, who helps organize lunches and cocktail parties for Carlyle’s female employees, said in an interview. “Mentoring women could be a legacy greater than any deal I’ve ever done.”
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