New ‘Predatory Behavior Index’ Shows VC, Equity Firms Accused of Sexual Misconduct Return Lower Rates

Researchers from George Mason University, University of California, Berkeley, and the Harvard Business School for the first time have studied reported instances of sexually predatory and discriminatory behavior at venture capital and private equity firms going back more than two decades. The study, released this week, compared fund performance against comparable funds where no instances of harassment or discrimination had been reported.

The findings could be important for business leaders: Funds with instances of discrimination or harassment behavior have an average 15 percent lower return over a typical 10-year fund lifespan.

“This research has the potential to change the definition of responsibility for institutional investors,” said co-author Philip Auerswald, an Associate Professor of Public Policy at Mason’s Schar School of Policy and Government. “The implications for asset allocation could be significant.”

The researchers developed the Predatory Behavior Index (PBI) that measures 10 different discriminatory and harassing behaviors that have the most common occurrences in the private equity and venture capital industry. The behaviors—ranging from enabling discriminatory behavior to rape and assault—are ranked according to severity. The authors will update the index and track the performance of funds on an ongoing basis.

The research can be found in the working paper, Predators in the Board Room? Relating Sexually Predatory, Discriminatory Behavior to Private Capital Performance, written by Imogen Rose Smith, Investment Fellow with the University of California; Gitanjali Swamy, Research Fellow and Director Special Projects at the Private Capital Research Institute at Harvard Business School; and the Schar School’s Auerswald. 

“Investors can now see that these inappropriate behaviors have an impact on financial results,” said Swamy. “Addressing this type of behavior is not just a moral imperative, it is close to a fiduciary duty for investors.”

The working paper can be found at the Schar School of Policy and Government here.