‘Become engaged asset owners’ suggests AIMA as hedge funds feel ESG pressure

Nearly two thirds of hedge funds have seen an increase in ESG interest over the past 12 months, according to the latest annual industry survey from the Alternative Investment Management Association (AIMA).
The survey, which AIMA conducts each year to gauge industry developments, concluded that responsible investment had emerged as a major theme for the 118 hedge fund managers that participated. The respondents represent $440bn of assets under management.

Half of the survey’s respondents said they used ESG factors to assess potential investments

When asked: “Over the past year, have you seen an increase in interest around your firm’s responsible investment capabilities from current or prospective investors?”, 62% of respondents said yes.
“This is representative of the strong sentiment we see across the broader hedge fund industry, where ESG and responsible investment is fast becoming one of its most significant considerations”, said the report’s authors.
It added that hedge funds faced with questions on responsible investment practices “may find that by taking small steps, such as becoming an engaged asset owners, they can demonstrate positive practices”.“Related to that, where a hedge fund teams up with its investors, via ownership of a small percentage of a listed company’s equity, they can demand the attention of the company’s governing bodies and pressure them to improve their ESG practices,” it continued.
Half of the survey’s respondents said they used ESG factors to assess potential investments, with nearly one third adopting some level of ESG-based exclusion. Only 20% engage directly with firms on these issues, and even fewer – around 10% – undertake any kind of impact investing.
The policy push in Europe, coming mainly through the EU’s Action Plan on sustainable finance, is a key driver of interest in ESG for hedge funds. Adam Jacobs-Dean, Managing Director and Global Head of Markets, Governance and Innovation at AIMA, described regulatory change for hedge funds as “clearly on the horizon in the EU”.
“While its full impact isn’t being felt yet, it undoubtedly will be, given moves to embed sustainability considerations in firms’ risk management processes and increase senior-level accountability for risks associated with sustainability,” he told RI. “Changes to investment advice rules and new sustainability disclosures are also likely to increase investor focus on what managers are doing in this space,” he added.