Hedge Fund Money Trending Towards ESG Investments

May 30, 2019 James Heinsman Hedge Fund News

Socially responsible investing has been trending in recent years with close to $31 trillion finding its way to investment funds and strategies that look for companies that practice good governance and socially responsible business practices. But until recently hedge funds have lagged a bit behind this trend.

According to a study by Preqin published this month, about 30% of hedge funds say they are using ESG (Environment, Social, and governance) criteria to help choose investments. It was the first time the data provider even asked the question to their hedge fund customers.

“The activity level relative to ESG within the hedge fund industry historically has been fairly low, but it’s going to increase significantly,” said CEO Don Steinbrugge, of hedge fund consultant Agecroft Partners. “It’s an area that a lot of institutional investors are thinking about. It’s going to be a big growth area.”

“There are a lot of different takes on what responsible investment means in practice in the hedge fund industry,” said Adam Jacobs-Dean, global head of markets, governance and innovation for industry group Alternative Investment Management Association. It’s just not “as apparent how to integrate ESG if you are a hedge fund trading interest-rate swaps, or an emerging-markets manager,” he said.

Clifton Robbins, the founder and CEO of Blue Harbor Group, explained that at his fund they are “absolutely convinced it is a way to both reduce risk and improve returns.” He added that “we are at a tipping point where a lot of investors care about ESG.”

Some hedge fund managers are not convinced that ESG considerations are reflected in improved returns. Of the more than 250 managers with $1.3 trillion with AUM, only 23% think that ESG strategies help funds do better. But client demand might make managers think twice about considering ESG criteria for investments. Over 60% of the same group of managers also said that their investors are asking about ESG and if its part of the due diligence the managers perform before investing. And that 60% grows to 75% for managers who are headquartered in Europe and MENA.

Agecroft Partners, ESG, Preqin, Socially responsible investing,

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