The Evolution Of ESG In Secondaries Transactions

Despite the recent politicization of ESG investing, it is clear that ESG considerations have broken through into the mainstream and are here to stay. Following the insights we shared in this post, "ESG: What we're hearing from Asia investors," we wanted to delve into the evolution of ESG's role in secondary transactions.

Historically limited role of ESG in secondary deals

Historically, many market participants didn't feel there was a significant role for ESG in secondary transactions. In a typical LP portfolio purchase the secondary buyer is acquiring a comparatively small stake in one or more underlying funds from an existing LP. These purchases occur after the underlying funds have completed fundraising and, given the context, secondary buyers usually don't have leverage to negotiate ESG or other side letter provisions. Rather, a secondary buyer acquires those interests effectively on an "as is" basis.