The private markets secondaries space has entered a new chapter. What was once a niche corner of alternative investments, used primarily by limited partners (LPs) seeking early exits from fund commitments, has grown into one of the most dynamic segments of global private capital. The market has tripled in size since 2019 and grown by approximately 50% between 2024 and 2025 alone, reaching an estimated $230 billion in annual transaction volume and now representing around 5% of all global private equity assets under management. 

This piece examines the forces behind that expansion, the structural shifts redefining the market, and the operational and regulatory challenges participants will need to navigate as the asset class continues to scale.

Market Growth and Shifting Deal Dynamics

Several converging factors have driven the secondaries market to its current size. A prolonged slowdown in IPO activity and traditional exits has created a liquidity bottleneck across private markets, leaving many LPs over-allocated to alternatives and constrained in their ability to make new commitments. The secondary market has become a primary mechanism for these investors to rebalance portfolios and free up capital.

Deal structuring has grown more sophisticated in step with market volumes. Ropes & Gray has observed a continued expansion in the use of purchase price deferrals and earnouts, and more recently, the introduction of deal-specific funding caps, limits on how much capital a buyer can be called to deploy before a specified date. These mechanisms allow sellers to achieve higher reference-date pricing while enabling buyers to manage capital deployment pacing and portfolio composition. In Q1 2026 alone, institutions initiated new secondary sales processes totaling north of $20 billion, some linked to denominator effect concerns as declines in public market portfolios pushed private allocations above target levels. Whether this proves a sustained driver of supply will depend on how institutional portfolios weather current market conditions.

The Three Transaction Types

Secondary transactions fall into three main categories: 

• LP-led transactions, the original form, involve an LP selling existing fund interests, sometimes across a broad portfolio of hundreds of positions, typically through competitive auction processes with tight timelines. 
• GP-led continuation funds, the fastest-growing segment, involve a sponsor transferring select assets into a new vehicle, giving existing LPs the option to cash out or roll forward. As of 2025, GP-led and LP-led volumes are roughly evenly split at around $115 billion each. GP-led buyout fund volume grew 39% year-over-year, while private credit secondaries saw nearly 300% year-over-year growth in GP-led activity. 
• The third category, structured solutions, provides capital to a GP collateralized by existing fund assets and can take a wide variety of bespoke forms.

What Are the Operational and ESG Challenges in the Market?

One of the defining challenges in secondaries is the speed and scale of due diligence required, particularly in LP-led transactions. Buyers may need to evaluate hundreds, or in private credit secondaries, over a thousand, underlying positions with limited information and within windows of 24 to 48 hours. As Jessica Huang, Managing Director and ESG lead for private equity and secondaries at Ares Management, noted in a recent webinar:

Against this backdrop, LP expectations around ESG integration have risen sharply. LPs are now holding secondaries to a standard closer to that applied to direct investments, with requests for Article 8-classified funds, look-through exclusion lists, and UN Global Compact compliance screening becoming more common. Main exclusion categories include fossil fuels, controversial weapons, tobacco, and gambling, though definitions and revenue thresholds vary significantly across mandates. SFDR 2.0, currently in draft form, may introduce additional mandatory exclusion categories that managers are monitoring closely. In LP-led deals where buyers are inheriting a broad portfolio of assets, highly granular opt-outs can mean missing certain large transactions, a trade-off that must be clearly communicated to LPs.

The Role of Technology and AI

Technology has become central to the scaling of secondaries operations. AI tools are now applied across controversy screening, ESG data analysis, and emissions estimation, where direct disclosures are unavailable. A particular challenge in the asset class is coverage: many underlying companies are small or mid-market private businesses not captured in conventional databases.

Market participants consistently emphasize that AI outputs serve as inputs to human judgment, not as replacements for it. At Ares, screening results are reviewed by ESG specialists before being passed to deal teams for final decisions.

What the Future Holds

Transaction volumes are forecast to continue rising as both the seller and buyer universes expand. Private credit, infrastructure, and structured secondaries all represent areas of growing specialization and regional expansion, particularly in Asia, where secondary activity has been limited but is expected to grow as investment programs mature, broadening the market further. Capital supply dynamics bear watching: while dry powder remains substantial, deal volume growth has outpaced fundraising since 2023, which could create pricing or capital constraints. The entry of retail investors through evergreen vehicles adds a meaningful new source of capital but brings different liquidity expectations and regulatory considerations.

On the operational side, the sophistication of deal terms, the complexity of ESG compliance, and the volume of data processed per transaction are all increasing. Firms that can integrate technology into their diligence and monitoring workflows, while preserving the human judgment layer, will be best positioned to manage market growth. Secondaries are no longer a supplementary liquidity tool; they have become a structural feature of how private markets operate.

Welcome back to the second part of our thought leadership series on implementing generative AI solutions for finance. In the first part of this series, I discussed the impact, implications, and potential challenges of generative AI in the financial sector. Today, I'm excited to share SESAMm's journey, a leading AI fintech firm, as we integrate the latest generative AI technology into our products.

SESAMm's Generative AI Journey

At SESAMm, we've always been at the forefront of technological innovation, and our approach to AI is no exception. We've been actively studying the market and gathering user feedback on the potential applications of Generative AI, particularly those modeled after large language models like ChatGPT.

The feedback revealed a clear demand for more Generative AI implementations. Recognizing the potential, we began by integrating the technology into our own internal processes, automating data annotation, streamlining competitor identification, and even generating marketing content. The results have been profound, leading to operational efficiencies and rapid skill development within our team.

Now, we're ready to ramp up our efforts and embark on a more aggressive Generative AI initiative. We aim to further embed large language models into our tech stack to enhance internal productivity, provide improved functionalities to our clients, and introduce a client-facing conversational agent in our dashboards.

The Roadmap for Integrating Generative AI

Our roadmap for integrating generative AI is threefold. First, we are already embedding large language models into our tech stack, developing solutions for automating data annotation for ESG/SDG alerts, automating company portfolio requests, improving the handling of complex queries, and leveraging generative AI for more automated due diligence.

Secondly, we plan to provide a client-facing conversational agent in our dashboards. This agent will automate the extraction and summarization of important ESG/SDG events, generate competitors’ lists and analyses, and handle full due diligence and ESG reports.

Finally, we're focused on increasing the internal adoption of AI across all teams. We're equipping teams with ChatGPT Plus accounts for daily tasks, granting a group of developers access to Github Copilot for productivity gains, and organizing internal working groups and demo sessions.

Enhancing Functionality and Performance

Integrating generative AI into our products will significantly enhance their functionality and performance. Clients will find it much easier to interact with our data, and usage of our dashboards will become quicker and more intuitive. New functionalities will be added, such as the summarization of ESG/SDG events and automatic searches of competitors and comparables for any company.

Notably, the integration of generative AI has led to a significant increase in our rate of shipping AI features. We've seen a five-fold reduction in development time for many components, enabling us to deliver value to our clients much more rapidly.

Robust Risk Mitigation

Risk mitigation is a key concern in the financial sector, and Generative AI can play a vital role in this domain. By integrating generative AI into our products, we aim to provide more comprehensive solutions for detecting risk and ESG controversies for due diligence and portfolio monitoring.
Generative AI will help us better interpret these controversies, providing insights as if our clients had immediate and constant access to an entire team of ESG analysts and experts for each company. This capability can significantly enhance our clients' ability to navigate potential pitfalls, ensuring safer and more informed decision-making.

Positioning for the Future

At SESAMm, we're positioning ourselves for the future by taking a proactive, agile approach to integrate generative AI within our existing product suite.
We're deploying a dedicated task force of experts on this project, iterating quickly and slightly outside our traditional product development processes. Training our team is a crucial aspect of this endeavor, with full team training sessions on Generative AI, discussions related to OpenAI’s API use, and practical examples presented by our data science team.

Our management team is highly passionate about this initiative. We continuously monitor and share the latest developments in AI, ensuring we don't miss any technological shifts that could accelerate our innovation efforts.

The Future of SESAMm with Generative AI

With the integration of generative AI, we envision a future where SESAMm can provide even more value to our clients. Our products will become easier to use, faster, and more intuitive. The new functionalities we are adding will allow us to provide insights and analyses that were previously out of reach.

Moreover, we foresee an increase in our pace of innovation. As I mentioned earlier, the integration of generative AI has already allowed us to develop new features five times faster. This acceleration will enable us to stay ahead of the curve and continue to provide our clients with cutting-edge solutions.

Finally, integrating generative AI will facilitate the adoption of advanced technologies across our entire team, fostering a culture of innovation and continuous learning. This internal transformation will drive our ability to deliver superior solutions to our clients.

The integration of generative AI is an exciting step for SESAMm. It presents numerous opportunities to enhance our product offerings, improve our internal processes, and deliver greater value to our clients. As we embark on this journey, we are not only shaping the future of our company but also setting a precedent for the finance industry at large.

Are you excited about the potential of generative AI in finance? Want to learn more about SESAMm's new solution? Click here to explore how we at SESAMm leverage generative AI to revolutionize the finance industry. Also, make sure you read the third and final part of this series.

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The European Union stands at the forefront of global efforts to promote environmental, social, and governance (ESG) accountability. As the world becomes increasingly ESG-aware, the EU has developed a comprehensive regulatory framework designed to ensure transparency and accountability across all sectors.

These regulations represent the EU's commitment to sustainable development and responsible business practices. However, the regulatory landscape is evolving, with the February 2025 EU Omnibus Proposal introducing potential modifications aimed at reducing the regulatory burden on businesses. However, these proposals come at the risk of substantially undercutting the impact of the regulations.

This article recaps the current ESG regulatory framework in the EU, explores the changes proposed by the Omnibus, analyzes the potential impacts of these modifications, and discusses how financial institutions can navigate this evolving landscape while maintaining compliance.

The ESG Regulatory Landscape in the EU

The EU is advancing sustainability through a framework of regulations that enhance corporate accountability and reporting on ESG impacts. These measures aim to promote genuine sustainable practices and address international trade and emissions challenges. Though comprehensive, these regulations are also, at times, confusing in the way they overlap and impact each other.
To get started, let’s examine the EU Taxonomy, SFDR, and CSRD—a triad of interconnected regulations designed to streamline and strengthen sustainable investing practices.

EU Taxonomy

The EU Taxonomy provides a classification system for environmentally sustainable economic activities, offering clear criteria to determine whether an economic activity can be considered "green."

Key Aspects of the EU Taxonomy

• Defines criteria for environmentally sustainable economic activities
• Helps investors identify truly sustainable investments
• Establishes a framework to prevent greenwashing
• Requires companies subject to CSRD to report on Taxonomy alignment
  

The Taxonomy helps channel investment toward genuinely sustainable projects and businesses by creating a common language for sustainable activities.

Status

The EU Taxonomy has been operational since January 2022 with phased implementation. As of March 2025, companies subject to CSRD must disclose their taxonomy alignment percentages.

Sustainable Finance Disclosure Regulation (SFDR)

The SFDR focuses specifically on the financial sector, requiring financial market participants to disclose how they integrate ESG risks into their investment decisions and the sustainability impact of their financial products.

Key Aspects of SFDR

• Requires disclosure of ESG risks in investment processes
• Classifies financial products based on their sustainability characteristics
• Aligns with EU Taxonomy criteria for sustainable investments
• Aims to prevent greenwashing in financial products
  

The SFDR plays a crucial role in bringing transparency to the rapidly growing sustainable investment market.

Status

Fully implemented since March 2021, with enhanced Level 2 requirements since January 2023. All EU financial market participants must classify products under Articles 6, 8, or 9. Current market data shows that 28% of EU funds are compliant with Article 8 and 5% with Article 9, with a significant trend of reclassification from Article 9 to 8 due to stricter interpretations.

Corporate Sustainability Reporting Directive (CSRD)

The CSRD stands as a cornerstone of the EU's ESG regulatory framework, requiring companies to report comprehensively on their environmental, social, and governance impacts. This directive mandates alignment with the EU Taxonomy, ensuring standardized reporting of sustainability metrics.

Key Aspects of CSRD

• Requires detailed reporting on ESG impacts
• Aligns with EU Taxonomy criteria for sustainability
• Currently applies to companies with 250+ employees
• Enhances corporate transparency on sustainability issues
  

The CSRD represents a significant step forward in standardizing sustainability reporting across the EU, providing investors, consumers, and regulators with comparable information on corporate sustainability performance.

Status

The CSRD, adopted in November 2022, replaces the Non-Financial Reporting Directive (NFRD). The transition to CSRD reporting was originally slated to begin in 2025 and would expand the number of companies subject to reporting requirements to 49,000 (vs 11,700 under NFRD). However, as we’ll see later, the Omnibus may push back the timing of CSRD.

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Outside of the EU Taxonomy, SFDR, and CSRD, the Omnibus Proposal highlights two other key ESG regulations: CSDDD and CBAM. These regulations relate to corporate accountability for supply chains and to limiting carbon leakage.

Corporate Sustainability Due Diligence Directive (CSDDD)

The CSDDD focuses on corporate accountability throughout global supply chains, requiring companies to identify, prevent, and mitigate human rights and environmental risks associated with their operations.

Key Aspects of CSDDD

• Requires companies to identify and mitigate human rights and environmental risks
• Applies to full supply chains, ensuring comprehensive oversight
• Applies to EU companies with 1,000+ employees and €450 million+ global turnover and non-EU companies with over €450 million EU turnover
• Mandates regular monitoring and reporting on due diligence efforts
• Strengthens corporate accountability for sustainability across operations
  

This directive acknowledges that a company's sustainability impact extends beyond its direct operations, encompassing its entire value chain.

Status

CSDDD was adopted in April 2024. Its phased implementation is slated to start in June 2026 and be completed by June 2028. The timing and scope of CSDDD is subject to change following the Omnibus Proposal.

Carbon Border Adjustment Mechanism (CBAM)

The CBAM is an innovative approach to preventing carbon leakage. It levies a carbon tax on imports to ensure that the EU's ambitious climate policies do not simply shift carbon-intensive production outside its borders.

Key Aspects of CBAM

• Imposes a carbon tax on imported goods
• Requires importers to report emissions data
• Ensures payment for embedded carbon costs in imported products
• Aims to prevent carbon leakage to regions with weaker climate policies
  

This mechanism aims to create a level playing field for EU producers subject to carbon pricing while encouraging global partners to implement similar carbon pricing mechanisms.

Status

The transitional phase for CBAM began in October 2023, with full implementation scheduled for January 2026. It currently covers cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. The certificate requirements will phase in gradually from 30% in 2026 to 100% by 2034. It’s expected to apply to 1.8 million EU importers and generate €5-14 billion in annual revenue when fully implemented.

The February 2025 EU Omnibus Proposal

Purpose and Goals

The EU Omnibus Proposal represents a significant recalibration of the EU's regulatory approach, seeking to balance sustainability ambitions with business competitiveness concerns.

The primary objectives of the Omnibus focus on alleviating regulatory burdens faced by businesses, simplifying compliance requirements, and streamlining reporting obligations. These efforts aim to enhance business competitiveness while addressing regulatory complexity concerns. By minimizing these challenges, the goal is to create a more favorable environment for businesses to thrive. However, this push for simplification could come at the expense of transparency and accountability, especially in sectors where regulation plays a protective role.

Impact Analysis: How the Omnibus Changes ESG Compliance

Below, we’ll take a closer look at each regulation and the changes proposed by the Omnibus Proposal.

EU Taxonomy Modifications and Implications

The Omnibus Proposal suggests a Level 2 modification to the application of the EU Taxonomy, reducing the number of companies required to report taxonomy alignment.

Key Changes:

• Taxonomy alignment reporting is limited to companies subject to CSDDD
• Voluntary reporting option for companies not required to comply
  

Possible Implications:

• Reduced availability of standardized sustainability data
• Increased difficulty in verifying "green" business claims
• Higher risk of greenwashing in financial markets
• Less reliable information for sustainable investors
  

These modifications would potentially undermine the Taxonomy's role in creating a common language for sustainable activities.

CSRD Modifications and Implications

The Omnibus Proposal significantly narrows the scope of the CSRD, reducing the number of companies required to report on ESG impacts.

Key Changes:

• Threshold increase from 250+ to 1,000+ employees
• Optional reporting for SMEs
• A two-year delay in reporting obligations for some companies
  

Possible Implications:

• 80% reduction in companies required to report
• Decreased transparency in corporate sustainability performance
• Fewer sustainability data available to investors and regulators
• Potential challenges in tracking sustainability progress

These modifications would substantially reduce the regulatory burden on smaller companies but raise concerns about the availability of comprehensive sustainability data.

CSDDD Modifications and Implications

The Omnibus  includes significant modifications to CSDDD, with a narrowed scope and reduced monitoring requirements.

Key Changes:

• Due diligence is limited to direct suppliers with over 500 employees, not full supply chains
• Monitoring frequency reduced from annual to every 5 years
• Delayed enforcement for one year for the first batch (Companies with 1.5 billion in turnover and 5000 employees)

Possible Implications:

• Weakened corporate accountability for supply chain sustainability
• Increased risk of undetected human rights and environmental violations
• Reduced monitoring of global supply chain impacts
• Extended timeline before full implementation

These changes would significantly reduce companies' compliance burdens but come at the risk of removing the essence of the directive, which is eliminating child labor, forced labor, etc.

SFDR  Modifications and Implications

While not directly modified, changes to other regulations, particularly the EU Taxonomy, indirectly affect the SFDR.

Indirect Impacts:

• Reduced availability of reliable ESG data
• Challenges in differentiating truly sustainable investments
• Potential increase in greenwashing risk
  

These indirect effects could undermine the SFDR's effectiveness in bringing transparency to sustainable investment products.

CBAM Modifications and Implications

The Omnibus Proposal simplifies CBAM compliance, particularly for smaller importers.

Key Changes:

• Small importers (under 50 metric tons/year) are exempted
• Reduced reporting burden for over 182,000 businesses
  

Possible Implications:

• Simplified compliance for small businesses
• Potential loophole risk if companies split shipments to stay under the threshold
• Maintained coverage of 99% of emissions despite exemptions
  

These modifications would maintain the CBAM's effectiveness while reducing the administrative burden on smaller importers.

The Debate: Perspectives on the Omnibus Proposal

Arguments in Favor

Proponents of the Omnibus Proposal emphasize its benefits for business competitiveness and regulatory efficiency. They highlight the reduced administrative burden, especially for small and medium-sized enterprises (SMEs), which often struggle with complex regulations. Additionally, the changes aim to simplify compliance requirements, making it easier for businesses to adhere to regulations. By aligning with global standards, the proposal helps maintain the EU's economic competitiveness while promoting a more efficient allocation of resources across industries. Together, these factors create a more streamlined and supportive environment for businesses to thrive.​

As BusinessEurope Director General Markus J. Beyrer stated:
"Doing better with fewer and clearer norms is what European companies of all sizes are asking for. By reducing unnecessary reporting and regulatory burdens, the first Omnibus will allow companies to contribute more effectively to the EU's sustainability objectives while also preserving the EU economy's competitiveness."

European Commission President Ursula von der Leyen also expressed support for the proposal, stating:​
"EU companies will benefit from streamlined rules. This will make life easier for our businesses while ensuring we stay firmly on course toward our decarbonization goals."

Criticisms and Concerns

Critics raise significant concerns about the potential undermining of the EU's sustainability ambitions. They argue that the Omnibus Proposal may lead to unintended consequences, including reduced transparency in corporate sustainability performance, weakened supply chain accountability, and regulatory uncertainty during transition periods. Additionally, it could undermine sustainability objectives and increase the risk of greenwashing.
As Mariana Ferreira from WWF European Policy Office commented:

"The Commission's sudden urge to destroy laws that are crucial for the achievement of the EU Green Deal is a perilous approach that is forcing Europe into a time of regulatory uncertainty. Under the guise of 'simplification,' the Commission put forward a proposal that will hinder economic and business success."

Similarly, a joint statement from over 360 civil society organizations and trade unions expressed:​

"The Omnibus proposal erodes EU's corporate accountability commitments and slashes human rights and environmental protections."

While the European Parliament debates the Omnibus Proposal, the fact remains that even if the regulations are delayed or loosened, the need for risk management remains unchanged. Investors require transparency, and companies must manage supplier risk effectively.

Navigating ESG Risks with SESAMm

SESAMm’s cutting-edge AI solutions empower investors, financial institutions, and corporations to navigate the complexities of ESG compliance with confidence. Leveraging an industry-leading data lake and state-of-the-art AI, SESAMm uncovers hidden risks in supply chains and target companies, providing real-time insights that drive proactive decision-making. By transforming regulatory challenges into opportunities for responsible and sustainable growth, SESAMm helps businesses stay ahead of evolving ESG requirements while mitigating risk and enhancing transparency.

SESAMm’s AI Technology Reveals ESG Insights

Discover unparalleled insights into ESG controversies, risks, and opportunities across industries. Learn more about how SESAMm can help you analyze millions of private and public companies using AI-powered text analysis tools.