Screening a portfolio for controversial business involvement is fundamentally different in public markets than in private markets. Public assets benefit from established disclosure requirements, third-party coverage, and standardized data, while private assets operate in a far more opaque environment. For ESG teams at LPs and GPs, these differences become especially acute in secondaries transactions, where investors inherit portfolios they did not originate and must assess risk under tight timeframes.
As regulatory frameworks such as SFDR extend similar expectations to private market funds, the gap between public and private screening becomes harder to ignore. Investors are increasingly expected to apply consistent exclusion policies and demonstrate rigorous screening across asset classes, even when data availability, transparency, and control differ materially.
This article examines the practical challenges of screening secondaries portfolios across public and private markets. It highlights where traditional approaches fall short, explores the structural constraints faced by LPs and GPs, and illustrates how hidden exposure can persist in private assets through the case of Crown Resorts and its governance and gambling-related controversies.
Data Availability and Transparency
Public companies typically provide more data through annual reports, revenue disclosures, and ESG rating coverage. For example, a company like Philip Morris International openly reports that almost 100% of its revenue comes from tobacco, making exclusion straightforward. That said, public market screening still relies heavily on self-reported information, which has its own limitations.
Private companies, by contrast, often disclose little to nothing about their business mix. A mid-market private firm may provide no public indication of its activities at all. As a result, GPs have traditionally relied on questionnaires, web searches, and due diligence calls to identify “sin” activities, a manual and imperfect process. Because private companies have no obligation to report controversial involvement, issues may surface only after investment. This opacity places pressure on GPs to demonstrate robust screening, particularly for SFDR Article 8 and 9 funds expected to apply comparable rigor to private assets without comparable data.
Coverage by Third-Party ESG Providers
Public markets benefit from broad coverage by ESG data and controversy research providers that maintain structured involvement lists across sectors such as weapons or gambling. Private markets face a clear coverage gap. LPs cannot assume that external ratings or datasets will flag problematic private companies.
This gap is particularly material for activities more prevalent in private markets, such as predatory lending or adult content platforms, which are rarely publicly listed. Traditional ESG datasets may miss these exposures entirely. Without alternative data sources, an Article 8 private debt fund could unknowingly finance a highly controversial company simply because it does not appear on any public exclusion list.
LP/GP Constraints and Mandates
Many LPs maintain their own exclusion policies and expect GPs to apply them consistently. In public markets, asset owners can screen holdings directly. Whereas, in private markets, LPs must rely on GPs to implement exclusions during sourcing and due diligence.
This reliance creates friction. A financially attractive deal may still be incompatible with LP mandates, forcing GPs to walk away. Under SFDR, GPs marketing Article 8 or 9 funds must demonstrate that portfolio companies align with promoted ESG characteristics, including exclusions for sectors such as weapons or tobacco. LP due diligence questionnaires increasingly reflect this scrutiny.
Secondaries investors face additional pressure. They must assess large portfolios they did not originate, often under tight timelines. Hidden exposure, such as sanctioned entities or controversial manufacturers, can pose a significant risk, driving increased use of accelerated ESG screening tools prior to acquisition.
Dynamic vs. Static Nature of Private Investments
Public market portfolios can be adjusted quickly if a controversy emerges. In private markets, investors are typically locked in for years, making pre-investment screening far more critical. A failure to identify controversial involvement can leave GPs choosing between remediation efforts and reputational damage.
Private companies also evolve with limited visibility. A business may pivot into controversial activities without public disclosure, and such shifts may only be detectable through external reporting rather than formal announcements. This reinforces the need for both rigorous upfront screening and ongoing monitoring throughout the holding period.
Case Study: Crown Resorts - Gambling and Governance Failures
Company Overview
Crown Resorts is Australia’s largest casino operator, running flagship properties in Melbourne, Perth, and Sydney. Its business model centers entirely on gambling & betting, making it a textbook case of significant involvement - essentially 100% exposure to an exclusion category that many funds ban or cap at ≤5–10% of revenue. Following a string of governance scandals, Crown was acquired by Blackstone in 2022 and delisted, offering a strong private-market example of why business involvement screening must extend beyond public companies.
Controversies SESAMm’s AI screening captures a sequence of serious ESG and regulatory failures:
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International illegality: 2016 arrests of 18 employees in China for promoting gambling in violation of Chinese law.
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Money laundering & crime links: laundering through casino accounts and continued partnerships with junket operators later tied to organized crime.
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Regulatory sanctions: inquiries in New South Wales, Victoria, and Western Australia declared Crown “unsuitable” to hold licenses; regulators imposed monitoring and fines totaling A$200 million+.
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Predatory behavior: evidence of loan-sharking within casino premises, and failure to protect patrons from exploitation.
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Screening Outcome
Crown is classified as significant involvement in Gambling & Betting, with additional flags under Sanctions & Exclusions. It also shows limited exposure to predatory Lending and minor environmental issues.
Screening Takeaway
Crown demonstrates how a company’s core business model (gambling) can intersect with multi-dimensional ESG risks (AML, governance, and social harm). In private markets, where disclosures are minimal, AI-driven screening enables investors to detect red flags early, determine whether engagement or exclusion is appropriate, and avoid inheriting reputational or regulatory liabilities.
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