Some of the largest institutional investors in the U.S. have increased their allocations to private equity firms owned by women and minorities in recognition of their superior performance, the National Association of Investment Companies reported Wednesday.
However, the total invested with diverse (also called “emerging”) managers remains a disproportionately small amount of the whole, according to the report.
The report, written by Meredith Jones of AON Hewitt and compiled with assistance from KPMG LLC, found that diverse-owned firms generated a net-of-fee internal rate of return of 16.15% for the 10-year reporting period ended December 2015, compared with a 11.3% IRR for the Cambridge US Buyout benchmark for the same period.
Jones is the author of “Women of the Street: Why Female Money Managers Generate Higher Returns (And How You Can Too).”
“It is widely accepted in investing that diversification is a good thing,” writes Jones in the book. “We diversify across managers, sectors, geographies, stock and bonds, and time frames, among other things. Wouldn’t it make sense to diversify behaviors and hormonal profiles as well?”
Funds included in the NAIC Diverse Private Equity Index outperformed the median Cambridge U.S. Private Equity funds during most vintage years.
On an IRR and multiple-on-invested-capital basis, diverse funds outperformed 62.5% of the time. And on a distributed-to-paid-in-capital basis, diverse funds outperformed 56.3% of the time.