Beyond the backlash

What a difference a few years make. In 2020, Google committed to a 30% increase in ‘underrepresented’ groups in leadership positions by 2025, for example. Fast forward to 2025 and that target has been scrubbed, as have similar pledges made by a range of high-profile companies, including Bank of America, BlackRock, Goldman Sachs, Amazon, McDonalds, Target, Meta, Walmart and Ford.

Anti-diversity, equity and inclusion (DEI) sentiment had been building in some quarters for a while. But US President Trump’s January executive orders aimed at ending DEI programmes in public and private organisations – and encouraging investigations into ‘illegal’ practices – added significant momentum. Private equity firms are far from immune to the pressure. Many of the largest listed firms removed most, if not all, references to DEI in their 2024 annual 10-K reports, according to PitchBook (see chart below). There has been a big reversal for some firms – Blackstone’s 2024 report featured no mentions of DEI or diversity at all. KKR has remained steadfast.

Ripples across the pond

“The first few months of the Trump presidency, with the anti-DEI executive orders, have had a substantial impact in the US,” says Anikka Villegas, senior analyst, fund strategies and sustainable investing at PitchBook. Some of this has been down to confusion and apprehension. “Federal contractors have to certify that they are not engaging in illegal DEI practices, yet there wasn’t a clear, decisive definition of what those illegal practices were. That increased fear of litigation.”

The US Equal Employment Opportunity Commission has since issued guidance, but there remains some uncertainty about what constitutes illegal practice. Villegas says some US fund managers are removing numerical diversity targets or retiring employment opportunities reserved for specific groups. “We’re also hearing that firms are often pulling back on talking about their programmes and cutting DEI sections from their websites and pitch decks,” she says. “Allocators have told us they think some general partners (GPs) have pitch decks for blue state [Democrat] allocators that differ from those for red state [Republican] allocators.”

So where does this leave Europe’s private equity firms? With most raising capital internationally (including from US limited partnerships), some with US offices and many with portfolio companies with US operations, repercussions are inevitable. 

Equality Group has produced its Honordex Report (see Improving picture, below), a benchmark of DEI practice among European firms based on publicly available information, for the past five years. “We have seen funds reacting quickly this year to political changes,” says Sasha Graham, Equality Group CEO. “During the scoring in January, some firms had shut down their DEI pages.”

It’s a well-corroborated story. DEI has been rebadged ‘people and talent’ and fundraising GPs have changed pitches to investors in the US. “We are hearing of GPs being advised to remove slides on DEI or environmental, social and governance (ESG) when presenting to some LPs,” says Fay Margo, CEO of Brackendale Consulting. “It is creating challenges for GPs in the way they market their funds, although we understand that some managers are seeking capital more from European and Asian LPs than previously.” Graham says she has heard of LPs “pulling out abruptly” at the mention of ESG.

“Ultimately, diversity policy comes from GPs,” says Gurpreet Manku, CEO of Level 20, which has helped increase female representation in European private equity investment teams (see Levelling Up, below). “In Europe, there has been a positive influence on LPs on this agenda. But at the end of the day, it is down to the fund manager and the GP. They can see the benefits of a more diverse talent pool. If you’re looking to attract talent, you must be able to demonstrate you’ve got appropriate policies and procedures. With respect to the current backdrop, there will always be something that firms need to deal with. We’re in a complicated economic and geopolitical environment, but the focus on people, the focus on talent, will always be there because that’s what enables firms to succeed.”

Free speech

In writing this feature, several organisations – law firms, private equity firms, headhunters and industry associations – that were approached for interview declined to comment. The majority of those have previously spoken publicly about DEI, or published reports or guidance on the issue. Others wished to remain off the record.

However, we did find firms keen to talk about the continued importance of DEI programmes. “While some firms are sunsetting their initiatives, others are doubling down on DEI,” says Graham.

Panoramic Growth Equity has not changed its stance. Investment partner Malcolm Kpedekpo says it’s likely some will. “The industry has been through a few stages with this,” he says. “Post-George Floyd, it seemed as though everyone was engaged with DEI and it was quite easy to talk about and pull together policies. The next stage was for firms to think about what they would do that was tangibly different. Some made some good changes; others debated and considered it, but weren’t fully convinced. These are the ones that maybe now are rowing back.”

He is concerned that the broader environment may affect overall progress on diversity in the industry. “For this to really work, people need to be speaking about it; they need to feel comfortable speaking about it. It feels as though we have gone back a little and now people don’t want to speak about it for a whole range of reasons.”

Several people we spoke to expressed frustration about the politicisation of initiatives that are designed to attract and retain the best people. Among them is John Carter, CEO of Hollyport Capital. “We want to avoid groupthink and create an environment where we are challenging ourselves in an open and collaborative way. It’s not about meeting targets or doing what governments or investors or anyone else thinks we should do, it’s about being a better business that delivers better returns for our investors.”

Hollyport has a 50-50 female-male split in its New York office investment team. “Most firms in New York struggle to attract women,” he explains. “We don’t because we already have talented women on our team. When we’re recruiting we get a lot of female candidates – it’s a virtuous circle.”

The firm has no plans to change. But, Carter says, GPs have always had to be mindful of their LPs’ differing priorities. “You have to respect the individual preferences of your investors and treat them individually. DEI is no different in this regard to other differences of opinion.”

He adds: “We have a clear ESG policy that we are proud of and we don’t shy away from it. We’re not political about this. If people want to talk about that in detail, we’ll engage. If it’s something others have no interest in, we respect that.”

ECI is also continuing to incorporate DEI factors into its decision-making. “We think it supports our growth agenda and is key to value protection,” says Fiona Moore, head of ESG at the private equity firm. While it’s challenging to prove causation, she says, the firm can show a relationship between inclusivity measures in portfolio companies and employee engagement and productivity. “It’s not necessarily linear and can be quite nuanced, but we do see a correlation: the businesses that perform better across our ESG framework generally have higher returns by exit.

“The wider environment means you need to sharpen your thinking about DEI,” she continues “You can’t be doing this just because you feel you ought to. You have to look at whether the initiatives are going to move the needle, especially around talent acquisition and retention, productivity and growth. In those terms, it becomes an easier discussion even if someone might be sceptical.”

Patria Investments is an LP that remains focused on DEI and the firm’s deputy head of private equity for global private markets solutions, Alistair Watson, believes it is far from alone. “I don’t think there will be a rollback among European LPs. Rather, there’s a frustration that things aren’t moving fast enough. There is pressure from LPs for GPs to be more representative of the societies they operate in.” Some firms take this seriously, he says, but “others do little more than pay lip service”.

Regulatory differences

The difference in perspective between US and European investors is partly down to regulatory tone-setting. January’s US executive orders contrast with the EU’s Corporate Sustainability Reporting Directive, which mandates reporting on DEI practices and targets for large companies. The UK is also considering adopting some of the EU’s Pay Transparency Directive requirements after consulting on ethnicity and disability pay gap reporting.

“The big picture is that DEI remains important in the UK and Europe,” says Karim Palant, director, external affairs at the British Private Equity and Venture Capital Association (BVCA). “Regulation is going in one direction in the UK and Europe. The industry recognises the importance of diversity within their own firms, including among investment decision-makers and portfolio companies.”

Another reason for differing perspectives is perhaps more fundamental. “DEI means different things in different regions,” says Villegas. “In the US, and to a certain extent in the UK, racial and ethnic diversity is a huge component. In more homogeneous regions, it may be more about gender diversity, socioeconomic diversity or neurodiversity.” She points out that the US executive orders focus on affirmative action and hiring exclusively based on merit and do not ban the tracking and reporting of gender pay gap data.

Several interviewees suggested some DEI programmes in the US had strayed into overreach territory. One said a backlash seemed “inevitable – you could almost see it coming”.

Step too far?

Sophie Flak, managing partner for sustainability and impact at Eurazeo (which topped the Honordex 2025 report), believes that “diversity brings optionality and resilience”, and “it makes no sense to restrict where you look for talent if you want to recruit the best of the best”.

The design of some diversity programmes in the US and elsewhere have not helped, she says: “Part of the issue in the US is that diversity efforts have often been siloed according to different ethnic communities. The philosophy of asking how we can create places where all live harmoniously together has somehow been lost.”

Flak views companies as having a critical role to play in building cohesive societies. “They can be social cement,” she says. “Has there been political backlash? Yes. Has there been operational backlash? No. Because companies reflect demographic trends. Even if companies are less vocal about what they are doing, they must address it because their client base and workforce is increasingly diverse in most parts of the world.”

She says there needs to some reframing of DEI more broadly, including in Europe. “We talk about gender balance in Europe – let’s stop making it solely about women,” she says. “DEI embraces much wider topics, including racism, antisemitism, homophobia, grossophobia and ageism, and no one should feel excluded.” 

Overall, she says: “We need a new narrative because the current one has failed. Equal rights does not mean greater rights for some to impose on others. Let’s not advocate for one group against another. We need to do better.”

There is clear reticence to talk about DEI publicly in certain quarters of the European private equity industry. That it has become a politicised term that means different things to different people does not help. Some firms will inevitably retire DEI initiatives. Meanwhile, many will quietly re-label them, but change little of substance behind the scenes. “If you focus on what people are doing, the momentum is there,” says the BVCA’s Palant.

Equally, plenty will publicly discuss why they continue to embrace diversity in firms and portfolio companies. As Panoramic’s Kpedekpo says: “If you genuinely believe it’s good for your business and you can see the benefits of having different views in the room and of coming at issues and decisions from different angles, why wouldn’t you do what you can to find people from a range of backgrounds?”