Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Research
A Global Approach to DeFi Regulation
Regulation | Sep 7, 2023
Recognizing the borderless nature of DeFi and its potential to revolutionize financial markets, IOSCO has established a global approach to address the associated risks and uncertainties.
In a media release dated September 7, 2023, IOSCO unveiled nine policy recommendations that span six crucial areas, ensuring a comprehensive framework for DeFi regulation. These recommendations are a testament to IOSCO’s commitment to fostering innovation while upholding market integrity and investor protection.
Key Areas of Focus
The six crucial areas covered by the International Organization of Securities Commissions (IOSCO) in their policy recommendations for Decentralized Finance (DeFi) are:
See: Bank of Canada Publishes Analytical Notes on DeFi
- Understanding DeFi Arrangements and Structures: Analyzing DeFi products, services, arrangements, and activities to assess how existing regulatory frameworks might apply and identifying any potential gaps in regulation.
- Achieving Common Regulatory Standards: Working towards consistency in regulatory frameworks and oversight across different jurisdictions to ensure a level playing field and to address the cross-border nature of DeFi.
- Managing Key Risks: Identifying and addressing the material risks associated with DeFi, including operational, technological, and market risks, to protect investors and ensure market integrity.
- Ensuring Clear Disclosures: Requiring clear, accurate, and comprehensive disclosures from DeFi participants to provide investors with the information they need to make informed decisions.
- Enforcing Applicable Laws: Ensuring that existing laws and regulations are enforced, and taking action against DeFi participants that operate outside of regulatory frameworks or engage in illicit activities.
- Enhancing Cross-Border Cooperation: Promoting cooperation and information sharing among regulators to address the challenges posed by the global and decentralized nature of DeFi, and to coordinate responses to cross-border regulatory and enforcement issues.
These areas are designed to provide a comprehensive framework for the regulation of DeFi, addressing the unique challenges posed by this emerging sector and ensuring that investors are protected and markets remain stable and transparent.
Public Consultation
In a move to promote transparency and inclusivity, IOSCO has opened the floor for public consultation, inviting stakeholders to provide their input on the policy recommendations. The consultation period is set to conclude on October 19, 2023, with the finalization of the DeFi recommendations expected by the end of the year. This collaborative approach ensures that the final policy framework is well-rounded and takes into account the diverse perspectives of all stakeholders involved.
See: Adapting IOSCO Principles to Digital Assets Markets
To stay updated on the progress of IOSCO’s DeFi policy recommendations and to contribute to the public consultation, visit IOSCO's official website. Together, we can shape the future of finance and ensure that DeFi reaches its full potential in a secure and regulated environment.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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When Your Car Knows More About Your Love Life Than You Do!
Data Privacy | Sep 7, 2023
Image: Unsplash/Matthew Sichkaruk
A recent study by the Mozilla Foundation has unveiled some eyebrow-raising facts about modern cars. While we've all been busy worrying about our smartwatches and doorbells spying on us, our cars have silently revved up their data collection game.
Picture this: You're cruising down the highway, wind tousling your hair, belting out your favorite tunes, and feeling the freedom of the open road. But wait, did your car just wink at you? Well, not quite, but it might as well have, given how much it knows about you!
The Data-Driven Drive
According to the study, every single one of the 25 car brands researched collects more personal data than necessary. That's a whopping 100% for those who love stats! And it's not just about how often you skip that '80s playlist or your penchant for midnight drives. Some of these brands are diving deep—like, really deep. While modern cars are becoming increasingly intelligent and connected, it's essential to ensure they're also adequately insured. If you're in Toronto, you can get competitive car insurance quotes toronto to safeguard your vehicle.
Every car brand researched collects more personal data than necessary.
- Car companies have vast opportunities to collect data, surpassing even smart devices and cell phones.
- They can gather information from car interactions, connected services, car apps, and third-party sources like Sirius XM or Google Maps.
- The data collected can range from medical and genetic information to details about one's "sex life", driving habits, locations visited, and music preferences.
Love on the Road?
Now, here's where it gets juicy. Nissan, in its infinite wisdom, thinks it's essential to know about your "sexual activity." Yes, you read that right. Your car might just be your biggest gossip buddy! And not to be left behind, Kia chimes in with its interest in your "sex life." One can't help but wonder if they're planning to launch a dating app integrated into the dashboard -> Find love on the go with CarDate!
See: Insurance Industry Sitting on Treasure Trove of Big Data, As Regulators Wrestle Data Privacy
And if that wasn't enough, six car companies have expressed their desire to know about your "genetic information" or "genetic characteristics." Perhaps they're contemplating a new matchmaking feature: "Drive with someone who shares 99.9% of your DNA!" (Disclaimer: Not recommended for those looking to expand their gene pool.)
Sharing is Caring?
84% of these brands are more than happy to share your personal data with service providers, data brokers, and other unknown businesses. So, while you thought you were having a private moment singing that romantic ballad, there's a good chance a data broker somewhere is nodding along with you. And 76% say they can sell your personal data. To whom, you ask? Well, that remains the million-dollar (or perhaps, given the data, the billion-dollar) question.
Taking Control (Or Not)
While 92% of the brands give drivers little control over their data, Renault and Dacia seem to be the knights in shining armor, allowing drivers the right to have their data deleted. But let's face it, in a sea of data-hungry sharks, two fish don't make much difference.
Manipulating Consent
- Car companies often assume consent based on the use of their vehicles or services.
- Subaru, for instance, assumes that passengers have consented to data collection just by being inside a connected car.
See: The Formation of the Canadian Digital Regulators Forum and its Impact on the Digital Economy and Consumer Privacy
- Some brands, like Tesla, offer an opt-out from data collection but warn that it might reduce the car's functionality or even render it inoperable.
- Some companies, like Nissan, place the onus on the car owner to inform other users or passengers about the car's privacy policies.
Data Hubs on Wheels
Cars today are more than just vehicles; they're data hubs on wheels. And while advancements in technology can enhance our driving experience, there's a fine line between useful and just plain creepy. So, the next time you're in your car, remember to keep your secrets close and your data closer. And maybe, just maybe, avoid any risqué conversations unless you want your car to play matchmaker on your next road trip!
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Crypto’s 22 Billionaires & the Global Adoption Index
Crypto Research | Sep 6, 2023
Image: Unsplash/Engin akyurt
The Rise of Crypto Billionaires and Charting Global Adoption
As highlighted in the 'Crypto Wealth Report' by Henley & Partners, a select group of 22 individuals stands tall as crypto billionaires, testament to the monumental growth of the industry. The past decade has witnessed the emergence of a new breed of billionaires: the crypto magnates. This cadre of ultra-wealthy individuals owes their colossal fortunes to the burgeoning world of cryptocurrencies, particularly Bitcoin and a variety of altcoins.
A Glimpse into the Numbers
According to a recent report from Henley Global, the number of crypto billionaires has seen a significant uptick. Bitcoin alone has been responsible for creating six billionaires, while the broader crypto ecosystem has given rise to an impressive 22 billionaires.
- Millionaires: These are individuals who have a net worth of at least one million USD in cryptocurrency.
- 40,500 individuals in Bitcoin
- 88,200 individuals in Total Crypto
See: Millennials and Crypto: Understanding the Generational Shift in Investment Mindset
- Centi-millionaires: These are individuals who have a net worth of at least 100 million USD in cryptocurrency.
- 78 individuals in Bitcoin
- 182 individuals in Total Crypto
- Billionaires: These are individuals who have a net worth of at least one billion USD in cryptocurrency.
- 6 individuals in Bitcoin
- 22 individuals in Total Crypto
- Total crypto users (million): This is the total number of users who own any amount of cryptocurrency.
- 210 million users in Bitcoin
- 425 million users in Total Crypto
- Total market value (USD billion): This is the total market capitalization of the cryptocurrency.
- 602 billion USD for Bitcoin
- 1,180 billion USD for Total Crypto
It's important to approach any count of "crypto billionaires" with caution, as the crypto market's volatility and the private nature of many holdings can make exact figures elusive.
Top Countries Embracing the Crypto Revolution
The Crypto Adoption Index is a comprehensive metric that evaluates countries based on their receptiveness and infrastructure for cryptocurrencies. The index considers various parameters, allowing users to customize the index based on factors that are most relevant to them. Here's a breakdown of the top countries leading the crypto adoption race in 2023:
See: Blockchain Coalition Report: The State of Web3 in the U.S. – State by State Analysis
Metrics tracked by the Index:
- Public Adoption: Measures the general public's acceptance and use of cryptocurrencies.
- Infrastructure Adoption: Evaluates the availability and accessibility of crypto-related infrastructure such as ATMs, exchanges, and merchants.
- Innovation and Technology: Assesses the country's technological advancements in the crypto domain.
- Regulatory Environment: Considers the country's legal framework and its stance on crypto regulations.
- Economic Factors: Includes considerations like tax-friendliness towards crypto assets and transactions.
How Does Canada Rank in the 20234 Global Crypto Adoption Index?
Canada's position in the global crypto adoption index provides an insightful perspective into its stance and environment regarding cryptocurrencies. Let's break down the various parameters and analyze Canada's ranking:
Read: Canadian Government Publishes Report with 16 Recommendations: Calls for a National Blockchain Strategy to Support Adoption and Industry Growth
- Public Adoption (5.1/10): This score suggests that while the Canadian public is showing interest in cryptocurrencies, there's room for growth. The score is relatively moderate, indicating a budding curiosity and acceptance but not yet a widespread embrace.
- Infrastructure Adoption (9.3/10): One of the highest scores in this category across all countries listed. It indicates that Canada has robust infrastructure in place for crypto trading, exchanges, and other services. This is a positive sign of an established and growing ecosystem.
- Innovation and Technology (5.3/10): A more moderate score in this category suggests that while Canada might have the infrastructure, it's still evolving in terms of technological advancements and innovation in the crypto space.
- Regulatory Environment (7.4/10): A fairly strong score, indicating that Canada has a conducive regulatory framework that's relatively friendly or neutral towards cryptocurrencies. This ensures a safer and more structured environment for crypto enthusiasts and investors.
- Economic Factors (8.1/10): This score suggests that the economic conditions in Canada are favorable for crypto adoption, perhaps due to a stable economy, a tech-savvy populace, or other macroeconomic factors.
- Tax Friendliness (5.2/10): While not the highest, this score suggests a moderate stance on crypto taxation. It's neither too punitive nor very encouraging, making it neutral for potential investors.
- TOTAL (40.4/100): Canada's cumulative score of 40.4 places it 8th in the list. It's evident that while Canada is a front-runner in terms of infrastructure, it has room for improvement in terms of public adoption, innovation, and a more favorable tax environment.
Canada exhibits a healthy environment for crypto, backed by solid infrastructure and a conducive regulatory landscape. However, to climb the ranks further, there's a need for more public awareness, technological innovation, and perhaps a more encouraging tax policy. Recently, the Canadian government published 16 recommendations calling for a National Blockchain Strategy to support adoption and growth.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Barclays Insights: Decoding Tomorrow’s Money Today
Report | Aug 27, 2023
Image: Barclays Rise Report Money in the Age of Tech
Decoding Tomorrow's Money Today
In an era where digital transformation shapes every facet of our lives, understanding the future of money becomes paramount. Barclays, a leading global financial institution, has delved deep into the evolving landscape of finance, shedding light on the nuances of Central Bank Digital Currencies (CBDCs), the surging importance of stablecoins, and the revolutionary impact of Web3. Their latest report, 'Money in the age of tech', is a goldmine of insights, statistics, and expert opinions that decipher the intricate web of tomorrow's financial systems.
10 Reasons to Read the Report
- Almost 120 countries, representing over 95% of global GDP, are exploring a Central Bank Digital Currency (CBDC) in some form.
- China’s CBDC pilot reaches 260 million people and is set to expand to most of the country in 2023.
- In 2022, Web3 technologies were identified as a game changer with the potential to revolutionize the financial sector, emphasizing their role in decentralizing and ensuring transparency in financial transactions.
- Research suggests that the tokenization of global illiquid assets could become a $16 trillion industry by 2030.
- In 2022, settlements using stablecoins (see PayPal's PYUSD) surpassed $7 trillion, compared to Mastercard's business transactions totaling $2.2 trillion.
- Tether (USDT), a popular stablecoin, reported record profits of $1.48 billion in Q1 2023.
- While the world is rapidly digitizing, many, including the elderly, still lack access to digital payment technology, posing challenges to a complete shift.
- The Bank of England has entered the design phase for the 'digital pound' in early 2023, with a decision on its implementation expected by the end of 2025.
- The Reserve Bank Of India is piloting both retail and wholesale CBDCs, with participation from over 100,000 customers and 13 banks.
- Nubank, a Brazilian fintech, offers a token-based loyalty program (Nucoin) to its 70 million customers.
Select Quotes
These quotes underscore the magnitude of the ongoing digital transformation in the financial sector and hint at the exciting possibilities the future holds.
Ravikant Agrawal, Director of Growth, Polygon Labs:
As digital assets mature, they become less speculative and gain more utility. Tether (USDT), a popular stablecoin, reported record profits of $1.48 billion in Q1 2023 and demonstrates the surge in demand in this area.
See: More Fintech Research and Reports
Utpal Chakraborty, Founder & CTO, Inteltie Technologies:
The Reserve Bank Of India (RBI) is currently piloting both retail and wholesale CBDCs, with a participation of over 100,000 customers and 13 banks. Obviously, security and regulatory compliance are critical.
Dr. Terence Tse, Co-Founder and Executive Director, Nexus FrontierTech
As the rest of the world tracks the developments in the Nordic region and learns from their experience, it’s likely that we will see more countries transition towards digital money in the coming years.
Professor Jamiel Sheikh, Adjunct Professor, Columbia School of Business and Zicklin School of Business
If we’re spending more time in the metaverse than in the real world, it stands to reason that we may be transacting and trading more there as well. The digitisation of currencies and the virtualisation of reality will together force the whole financial services industry to reconsider how to best capitalise on this opportunity.
The Future of Money in the Age of Financial Technologies
As the contours of our financial landscape shift, embracing the promise of tomorrow's money is more than a mere choice—it's a necessity and the onus is on fintechs and financial institutions to lead the charge. The convergence of technology and finance has unlocked doors we once thought impenetrable.
Read: Vass Bednar: Canada’s Glaring Banking Protections Gap and Implications for Consumers and Fintechs
Yet, as opportunities arise, so do challenges. It's crucial for innovators to remain agile, adaptive, and ever-aware of the evolving needs of consumers. By harnessing the full potential of digital advancements, we can sculpt a future where finance is more inclusive, efficient, and resonant with the needs of the global community.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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CVCA H1 2023 Report: Venture Capital Market Overview
Venture Capital | Aug 23, 2023
The Canadian Venture Capital (VC) and Private Equity (PE) market has showcased significant developments in the first half of 2023.
- Investment Overview
- CAD $2.8B was invested across 170 deals in the second quarter, making it the second-largest Q2 on record, only surpassed by Q2-2021.
- This indicates a 140% increase quarter-over-quarter (QoQ) and a 45% rise year-over-year.
- The number of deals saw a slight 3% increase QoQ, with the average deal size reaching CAD $16.6M. This showcases strong investor confidence in backing companies with high growth potential.
- Funding Stages
- Pre-seed: CAD $47M was invested across 51 deals.
- Seed: CAD $245M was invested across 70 deals, marking a 50% increase from Q1-2023.
- Early-stage: CAD $1.2B was raised from 54 deals, a significant 74% QoQ increase and 26% YoY rise.
See: KPMG Report H1 Canadian Fintech Funding: Echoes Early COVID-19 Days with Dramatic Investment Plunge
- Sectoral Investments
- ICT: CAD $1.8B was invested across 84 deals, with a significant focus on AI. A notable investment was in Cohere.ai, which secured $368M in a series C round.
- Lifesciences: CAD $738M was invested in H1, surpassing 65% of the total 2022 investments.
- Cleantech: Investments surged by 116% QoQ, reflecting the growing emphasis on climate issues.
- Non-dilutive Financing
- 2023 has seen a record year in deal activity, outperforming 2022 by 2% with 126 deals.
- However, the deal value declined by 33% to $78 million, indicating a trend towards smaller average deal sizes due to rising interest rates.
- Exits
- Q2 2023 saw 15 merger and acquisition exits with a combined value of CAD $279M.
- The absence of IPOs and focus on M&As indicates a strategic approach to the current economic scenario, balancing optimized returns and long-term growth.
See: Aligning Fees with Sustainability Goals – Impact Linked Carry
Closing Thoughts
- Kim Furlong, Chief Executive Officer of CVCA, emphasized the solid foundation of Canadian companies and the commitment to building a robust pipeline of deals. The increasing investments in the early stages highlight Canada's vibrant culture of innovation.
- Despite economic challenges, Canadian investors remain optimistic, focusing on sectors with long-term potential, such as ICT and cleantech.
View the full report --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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KPMG Report H1 Canadian Fintech Funding: Echoes Early COVID-19 Days with Dramatic Investment Plunge
Canadian Fintech Funding | Aug 23, 2023
Source: PitchBook, KPMG in Canada
In 2023's first half, Canadian fintech saw a significant three-fold decline in investments, reaching lows reminiscent of the early COVID-19 days, primarily due to economic uncertainties.
- KPMG in Canada reported investments of US$353.7 million over 57 deals, a stark contrast to the previous year's figures. Geoff Rush of KPMG attributes this to an ongoing downward trajectory initiated in the prior year.
- Concerns about the global economy, including fears of recession and rising inflation, have caused investors to reevaluate their strategies, leading to a decline in Canadian fintech investments. As Mr. Rush states, "Investors are still quite concerned about the state of the global economy... causing them to pause and reflect on their current investments and strategies."
- The first half of 2023 saw a significant drop, especially in Q2, which was one of the weakest quarters since 2016. However, Mr. Rush remains optimistic about future prospects, anticipating growth in areas like blockchain and AI, as many financial firms are keen on integrating emerging technologies.
What Can We Learn from the Deal Type and Investment by Industry Counts
- The majority of deals were early-stage and seed-round investments, indicating that investors are keen on funding young, innovative companies.
- Notably, there were no initial public offerings in the first half of 2023, continuing the trend from the previous year.
- Investor interest:
- Crypto and AI Lead The leading sectors in fintech investments were cryptoassets/blockchain and artificial intelligence/machine learning.
- Payments and Climatetech These sectors also saw some investments, though not as dominant as the former.
- Regtech and Insurtech These sectors saw moderate investments, indicating a steady interest but not a booming trend.
Outlook
- While the first half of 2023 has been challenging for Canadian fintech, the industry is poised for a potential resurgence.
- As global markets adapt to the changing economic climate, areas such as blockchain, artificial intelligence, and machine learning are expected to gain traction. Investors and fintech startups should remain vigilant, capitalizing on emerging opportunities and navigating the challenges ahead with strategic foresight.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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McKinsey Report: Diversity in Global Private Markets 2022 and Institutional Investors as Catalysts for Change
Report | Aug 23, 2023
Image: McKinsey report, State of Diversity in Global Private Markets 2022
The McKinsey report titled 'The State of Diversity in Global Private Markets 2022", presents new research that captures regional differences in diversity within private equity and discusses the role of institutional investors as catalysts for change.
Key Insights
- Scope of the report:
- The research focuses on diversity in the global private markets industry, particularly private equity (PE) firms and institutional investors (IIs).
- The study surveyed 42 PE firms and IIs globally and conducted interviews with industry leaders.
- Institutional Investors' Perspective: Chief investment officers (CIOs) of leading IIs would allocate twice as much capital https://ncfacanada.org/why-venture-capital-firms-need-more-women-partners-and-entrepreneurs/to a more gender-diverse PE firm when comparing two similar firms. More ethnically and racially diverse PE deal teams would receive 2.6 times as much capital.
- While 23% of all investing roles are held by women at PE firms globally,
- Only 12% are women at the managing director level.
- However, at diversity-leading firms, 32% of MDs are women, and 32% are ethnic and racial minorities.
See: Strategies for Addressing Canada’s Tech Talent Gap: Leveraging Micro-Credentials, Accessible Training Programs, and Diversity in Hiring
- Geographic differences exist across the pond.
- PE offices in the Americas have the highest share of women in the C-suite.
- APAC leads in women's representation in mid-level roles, and
- Europe leads slightly at entry-level investing roles.
- Even at senior levels, women and ethnic and racial minorities may not hold the same positions of power as their counterparts. PE investment committees report 9% women globally and 9% ethnic and racial minorities in Canada and the US.
- Institutional investors can be significant catalysts for change in diversity within PE, given the capital they allocate to PE firms. They are increasingly requesting diversity data from PE firms during fundraising.
Focus Areas for Institutional Investors as Catalysts for Change
1. Institutional Investors are increasingly asking for and receiving diversity data from private equity (PE) firms during their fundraising processes.
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- Since PE firms raise significant capital from IIs, they are motivated to align their actions and strategies to IIs’ priorities, especially during capital raises. By requesting diversity data, IIs can influence PE firms to prioritize diversity within their teams.
2. Chief investment officers (CIOs) of leading IIs have indicated a preference to allocate more capital to PE firms with more diverse teams.
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- For instance, they would allocate twice as much capital to a more gender-diverse PE firm when comparing two similar firms.
- By allocating more capital to diverse teams, IIs can incentivize PE firms to prioritize diversity. The data suggests that not only would diverse teams receive more funding, but there might also be a penalty for PE firms that lag peers on diverse talent.
See: CSA Seeking Comments on Proposed Changes to Governance and Disclosure Practices Around Diversity
3. Standardization of Diversity Metrics
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- One of the challenges both IIs and PE firms face is the lack of standardized metrics for reporting diversity. This makes the reporting process labor-intensive for PE firms and difficult for IIs to compare data across multiple PE firms.
- Standardizing diversity metrics would streamline the reporting process, making it easier for PE firms to provide consistent data and for IIs to make informed allocation decisions based on that data.
4. Broadening the Scope of Diversity
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- The current report primarily focused on gender and ethnic or racial diversity within PE firms. However, there's a recognition of several other categories that contribute to employee diversity.
- A broader understanding of diversity, including aspects like socioeconomic background, sexual orientation, etc., would provide a more comprehensive view of diversity within PE firms, allowing IIs to make more informed decisions.
Does It Make Sense for Institutional Investors (IIs)?
Yes, it does make sense for institutional investors to focus on these areas for several reasons:
- Diverse teams are known to bring varied perspectives, which can lead to better decision-making and risk assessment. By investing in diverse Private Equity (PE) firms, IIs can potentially mitigate investment risks.
- Many institutional investors have environmental, social, and governance (ESG) goals. Promoting diversity aligns with the social aspect of ESG, allowing IIs to meet their broader objectives.
See: McKinsey Report on Gender Diversity in Canada
- The research suggests that there might be a "diversity premium." IIs believe that diverse teams might lead to better investment outcomes, and therefore, higher returns on their investments.
- In the current socio-economic climate, there's a growing emphasis on diversity and inclusion. By promoting diversity, IIs can enhance their reputation and branding, making them more attractive to stakeholders.
In conclusion, it's not only a moral imperative but also a strategic one for institutional investors to act as catalysts for change in promoting diversity within the private equity industry. The landscape of private equity is undergoing a significant transformation, with diversity at its core. As institutional investors wield their influence, they not only champion a moral cause but also pave the way for a more inclusive, innovative, and successful future in private equity. The journey towards diversity is both a challenge and an opportunity, and with the combined efforts of all stakeholders, the industry is poised for positive change.
Participate in McKinsey's 2023 Study
Sign up to participate in McKinsey’s 2023 State of Diversity in Global Private Markets study: Sign up to participate
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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