The number of hedge funds incorporating environmental, social and corporate governance criteria in making investment decisions is small but growing, according to a report from the Forum for Sustainable and Responsible Investment.The recent industry association paper, Sustainability Trends in U.S. Alternative Investments, identified 47 so-called ESG hedge funds managing $2.6 billion, including such boldfaced names as Perella Weinberg Partners, Passport Capital and Highland Capital Management. That’s a small amount compared to the $80.9 billion at 375 private equity, venture capital, property and other alternative investment funds that engaged in some form of sustainable investing in 2011.
The report notes that although hedge funds have remained the smallest group in 2011, they have also gained greater ground, in asset-weighted terms, than other investor categories. And while the funds tend to be smaller than their ESG-friendly counterparts, the average ESG-oriented hedge fund size has increased fastest over the last two years, from $46.3 million in 2010 to $56.2 million in 2011.
“Unlike private equity and property vehicles, hedge funds have a much shorter history and association with sustainable and responsible investing. The relatively recent introduction of sustainable and responsible hedge funds incorporating ESG criteria has consequently fostered vocal debates about the feasibility of aligning sustainable investing with hedge fund investing,” said the report. But it adds that “The tradition of hedge-fund ‘activism’ with companies, though to date often focused on short-term maximization of shareholder value, affirms the importance of shareholder advocacy as a central SRI strategy for corporate accountability.”
The report also ranked the most frequently used criteria by ESG hedge funds. “Hedge funds tend to incorporate ESG criteria at a very general level, yet some also manifest a concern for exclusionary ‘sin stock’ screening of the sort commonly found in socially responsible investments in public equities, with restrictions against companies involved in alcohol, tobacco and gambling.”
The report included a list of most ESG hedge funds (not all 47 agreed to be named):
ACM Emerging Markets Master Fund I, LP Ada Sustainable Active Equity AIS Capital Growth Fund AIS Gold Fund AIS Multi Asset Allocation Portfolio (MAAP) AIS Tactical Asset Allocation Portfolio (TAAP) Alysun Fund LP Ardsley Partners Renewable Energy Fund, LP AWJ Global Sustainable Fund, LP Azimuth Diversified Fund, LLC BBT Capital Management SRI Fund, LP Civic Capital Fund I Connective Capital Emerging Energy Eden Global Fund EquityStar Energy Fund Food Energy and Water Fund Gabelli Green Long/Short Fund, LP Good Steward Enhanced Fund, Ltd. Green Science Partners LP Highland Enhanced Variable Rate Fund Ltd. | Highland Sola Fund Ltd. Highwater Global Fund II K2/Highland Overseas, Ltd. Malthusian Fund MicroVest Short Duration Fund, LP Minlam Microfinance Fund New Energy Fund, LP Passport Renewable Energy Fund Perella Weinberg Sustainable Resources Fund LP Prince Street Fund, LP Prudence Crandall Fund III, LLC PWP Oasis Fund LP Quotient US Sustainable Alpha (ESG) Resolve Eco Fund LLC River Twice Fund, LLC Savitr Peak Energy Fund I, LP Savitr Peak Energy Fund II, LP Summit Water Equity Fund, LP TerraVerde Capital Partners LP TS World Development Fund LLC Virid Eco Fund, LP |
To download the full report, visit http://ussif.org
