ESG and investment: where are we? Plus: AI’s productivity potential for alternatives investors

Happy New Year and welcome to the weekly round-up of highlights from our free, daily Preqin First Close newsletter, your essential guide to the global alternatives industry. I’m Jayda Etienne, Deputy Editor, and every Friday I select exclusive news and insights from the past week.

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Let’s kick things off with some trivia – Open AI’s ChatGPT had an explosive debut, attracting swathes of users days after launching in December 2022. How many visitors now flock to the site each month?

a)?????289 million

b)???? 370 million

c)?????464 million

d)???? 517 million

Find the answer at the end of the newsletter.

ESG’s under pressure, but this could mean more clarity for investors

2024 was characterized by some as the ‘rise and stall of ESG’.??

In recent years, the movement gained strong support across the corporate world. During the pandemic, capital flows into ESG-focused funds hit record levels and investors were increasingly backing ESG-compliant companies.??

But since 2021, starker political divides have emerged (particularly in the US). And, as law firm Mayer Brown says, ‘the gap has widened between the original aspirational virtues of ESG and practical realities.’?

They point to three contributing factors: the exposure of widespread ‘greenwashing’ —fraudulent assertions of environmental credentials — creating reputational risks for banks, companies, and asset managers; concerns that GPs who consider ESG-measures are abandoning their fiduciary duties and instead acting in self-interest; and increasing prioritization of financial returns over social or economic benefits.??

However, ESG investing in private markets still makes good business sense. The ‘E’ in ESG, aligns with key macroeconomic tailwinds, such as renewable energy, sustainable infrastructure, and cleantech.??

The rise of AI and the race to develop the next generation of technology is poised to accelerate in 2025.?This will require substantial investment in supporting infrastructure. And renewables are crucial to meet the growing power requirements, evidenced by M&A and strategic partnerships between tech giants and sustainable energy suppliers.?

More broadly, there’s lucrative investment potential in innovative climate technologies, such as green hydrogen, EV charging, and district heating solutions.?

Tailwinds aside, ESG investing requires reliable, consistent, and comparable data. Meanwhile, according to some, compliance frameworks, such as the EU Sustainable Finance Disclosure Regulation (SFDR), are failing to meet LPs’ needs. ? ?

Simon Witney, Senior Consultant at law firm Travers Smith told Preqin News: ‘Many institutional investors recognize that – as a disclosure regime – the SFDR has limited value when assessing an investment opportunity.’??

Yet, professional services firm EY is?optimistic that 2025 will be pivotal for funds, banks, financial institutions, and insurance companies, as impending regulatory transformations work to reshape sustainable finance practices worldwide.??

Will AI solve the productivity puzzle for economies, businesses, and workers?

There’s a lot of hope (and some anxiety) hanging on the future of AI, not least among alternative investors. There’s also a lot of activity.

At Preqin, we’ve so far tallied more than 6,000 venture deals with an AI angle in 2024, worth a combined $173bn. That’s not far off 2021’s VC boom-time total of 7,350 ($269bn), given the unavoidable reporting lag in last year’s data.

Just before Christmas, San Francisco-based Databricks raised $10bn in a round that included Thrive Capital, Andreessen Horowitz, DST Global, GIC, Insight Partners, and WCM Investment Management. The deal valued the data intelligence platform at $62bn.

Meanwhile, Masayoshi Son announced that SoftBank (which majority owns semiconductor designer Arm and manages the $100bn-plus Vision Fund) will invest a further $100bn in the US, including AI-based tech.

Get the full story by Shaun Beaney.

Private equity in 2025: LPs and GPs weigh in on the outlook for fundraising, deals, and performance. The prospect of more rate cuts, electoral stability, and signs of a recovery in M&A are giving managers reasons to be more optimistic for the year ahead, and point to an increase in exit activity and capital recycling.

US-based Lovell Minnick Partners invests in Broadstone. The UK financial services consultancy is now entering its 15th year under private equity ownership. Tony Gusmao, CEO of Broadstone, said LMP’s investment ‘will allow us to accelerate growth and expansion of our offerings – particularly in our newly formed Insurance, Regulatory & Risk Unit.’

Carlyle lends Norwegian brand house Jordanes $250mn to consolidate ownership. The management buyout of?Jordanes will be led by co-founders Jan Bodd and Stig Sunde.?The debt offering follows the final close of the $7.1bn?Carlyle Credit Opportunities Fund III?in December 2024. As of September 2024, Carlyle has a total AUM of $447bn and credit AUM of $194bn.

c) 464 million

According to data from Semrush, ChatGPT attracts 464 million visitors each month, as of November 2024. The chatbot acquired an impressive one million users just five days after launch. In comparison, Instagram took approximately 2.5 months to reach that figure, meanwhile Netflix took 3.5 years.

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