Private equity’s women problem is about to become a shade more costly—at least for Sweden’s EQT AB and the companies it sponsors.
As part of a 500 million-euro ($612 million) bond issue priced earlier this month, Stockholm-listed EQT took the unprecedented step of agreeing to pay lenders a higher interest rate if it failed to increase the percentage of women in its investment team, according to the sale prospectus. With women accounting for just 21% of the team currently, it set itself a target of 28% by 2026.
The move follows former Chief Executive Officer Thomas Von Koch’s 2018 claim that firms failing to challenge the status quo on diversity will put themselves at a disadvantage. Across the world women make up 32% of junior roles and 25% of mid-level roles in private equity on average, according to a March report from Preqin. That weighting drops to 12% for senior positions.
Private equity remains one of the most male-dominated sectors of finance. Carlyle Group Inc. and KKR & Co. are among firms that have set targets for the percentage of women on the boards of portfolio companies. Carlyle in February established a $4.1 billion credit line with borrowing costs linked to that metric. Apollo Global Management Inc. and Blackstone Group Inc. have also talked up efforts to increase the numbers of women and ethnic minorities at portfolio companies.
More broadly, companies have issued 9.3 billion euros of sustainability-linked bonds in Europe so far this year, nearly twice the full-year tally from 2020, according to data compiled by Bloomberg.
EQT’s interest-rate offer works like this. If it fails to hit the target, the coupon paid to bondholders increases by 7.5 basis points. Adding a twist, the company will pay a further 7.5 basis points if the companies it owns miss their boards’ diversity goals, and another 10 basis points if they fall short of a greenhouse gas-emissions target.
Last week, medical diagnostics firm Cerba HealthCare SAS raised a 1.53 billion-euro loan to finance EQT’s buyout that set goals for the share of women in senior management and emissions reductions. Cerba must pay a penalty for missing these targets but can also win a discount if it meets them.
Not everyone’s happy with the target that EQT has set itself.
“An improvement of 7% over today’s rather poor average over the next five years is not very impressive,” said Ingrid Teigland Akay, a managing partner of Oslo-based Hadean Ventures AS who runs a venture-capital fund that invests in women-led start ups. The target needs to be higher “to make a substantial difference,” she said.
For its part, EQT says it has made steps toward surpassing the goals.
“EQT has set appropriate diversity goals for its recently launched $500m sustainability-linked bond that will help to continue to drive positive change,” Anna Wahlstrom, global head of human resources at EQT, said. “This approach resulted in EQT being able to hire 39% female candidates in 2020 across our investment teams, up from only 19% the year before.”