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Private credit may have become a hot asset class, but it is ice-cold when it comes to inclusion.
Women-owned private equity firms* account for only 7.2% of all U.S.-based firms and have a smaller share of assets under management (AUM), just 1.6%, according to the Knight Foundation.
A women- and minority-owned private credit firm, Avante Capital Partners, is on a crusade to change that through its culture and industry-wide diversity, equity, and inclusion strategies.
Private credit—also known as private debt—is rapidly becoming the preferred method of financing for large-scale acquisitions and investments, with more and more companies choosing it to bypass public debt markets and banks in favor of this new asset class. It has become a popular investment option for institutional investors, such as pension funds, family offices, and endowments.
This asset class provides an alternative source of financing for mid-sized companies, filling the gap left when banks tighten lending requirements. Private credit funds are not subject to the same regulatory constraints as banks, allowing them to be more flexible in their lending practices.
“It provides non-dilutive capital,” said Ivelisse Rodriguez Simon, Managing Partner at Avante. “[Private credit] is a great source of capital for women and people of color entrepreneurs who have trouble accessing debt capital.” Her firm is focused on lower-middle market companies and has nearly $1 billion of AUM. Avante is a bridge between bank financing and private equity. The firm also provides some equity investment, which enables it to have high returns while minimizing risk.
Avante was founded in 2009 by Jeri Harman. Rodriguez Simon was the first person to join the founding team. While pregnant with twins and confined to her bed, she helped raise the firm’s first fund for $200 million. Not your typical fundraising story, especially back then.
This experience shaped the firm’s HR practices. The team has grown to nearly 20 people. Sixteen are women, people of color (POC), or both. “We wanted a firm that not only looked different but worked differently compared to other private equity firms,” said Rodriguez Simon. “Their culture is very harsh and not conducive to working moms.” She is a mother of four.
Rodriguez Simon thought that one good thing that might come out of Covid would be that remote work would become a permanent option in the industry. Unfortunately, it did not. “It’s a big problem for many women, and many are leaving the industry,” she sighed. “Our firm is 100% remote.
Diversity, Equity, And Inclusion Is A Passion
Rodriguez Simon’s personal experience shaped her passion and dedication to helping the industry become more inclusive. As a child, she moved with her family from Puerto Rico to a lower-income neighborhood in Chicago, where she learned to speak English. Rodriguez Simon was the first in her family to go to college. Her success in the industry shaped her desire to get others who look like her into the industry.
In 2019, women represented 19.1% of total employees in private debt and 17.9% in private equity, according to Preqin. Of all the private equity* U.S. employees, 22% are on the investment team, and 9% are in senior management.
The 7.2 % of U.S.-based private equity* women-owned firms manage only 1.6% of AUM.
“We’re seeing firms recruit more women and promote them into management positions,” said Rodriguez Simon. “But you’re seeing very few start their firms.”
According to Bloomberg, the private credit market has surged from $500 billion in 2015 to $1.5 trillion. Emerging manager programs get the crumbs of that market.
LPs must allocate more capital to women- and minority-owned firms to change the ratio. They must support meaningful programs. “Emerging manager programs are underfunded!” exclaimed Rodriguez Simon
Private equity firms are Avante’s clients. The firm sponsors seminars and networking events to help women further their careers. The firm has a database of 700 women. It encourages private equity firms to consider the diversity of their management teams, the companies they fund, and their boards.”
Avante Funds II and III are Small Business Investment Companies (SBIC). SBICs are privately owned and managed investment funds licensed and regulated by Small Business Administration (SBA). SBICs use their capital, plus funds borrowed with an SBA guarantee, to make equity and debt investments in qualifying small businesses.
Avante started an intern program called Small Business Investing Scholars for college students to expose women and POC to the SBIC industry. The summer program has 45 interns—all women, POC, or both—who work at over 30 SBIC funds. Interestingly, being a finance major or a numbers geek isn’t a requirement. More importantly, interns must show initiative, resilience, and intellectual curiosity. One of the best interns was a philosophy major. Many of the interns go on to have successful careers in the industry.
What helps Rodriguez Simon succeed? Grit and resilience. Still, “Honestly, we’re exhausted,” she said frustratedly.
