Our survey of 200 U.S. middle market private equity fund managers wasn’t designed to focus specifically on ESG, but across the questions we asked about deal making, value creation and exit planning, implementing ESG strategies clearly emerged not just as a unifying theme but as a solid strategic underpinning that fund managers are pursuing.
Inflation, higher interest rates and geopolitical uncertainty are weighing on the markets and on fund managers’ minds. Frenzied deal making in 2021 that set new records for deal volume and drove valuations higher has been followed by a market teetering on bear territory — all of which has fund managers reevaluating their value creation and exit strategies:
- 50% of fund managers said they would direct the most capital toward setting up impact funds or investing in targets with ESG-focused themes. Just 12% said they’d direct the most capital to new deals.
- 95% said they evaluate targets’ ESG potential as part of due diligence.
- Asked about their main objective in developing an ESG strategy, 49% said attracting and retaining talent, 40% said improving portfolio performance and resilience, and 33% said earning a higher valuation at exit.
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