Doing good and maximising returns
Hedge funds that pay proper regard to ESG do exist, but at present, investors need to look ‘under the bonnet’ in order to fully understand, monitor and quantify how ESG is integrated.
Hedge fund managers that aim to both achieve benefits beyond mere financial gains and to maximise returns run the risk that they fail to deliver on either. This is because excluding certain investments and imposing restrictions on what a strategy can and cannot do potentially sacrifices additional returns.
Funds that implement a simple exclusion list are clearly reducing their opportunity set. Conversely according to a 2019 paper by MSCI, funds that integrate ESG in an intelligent, tail risk-orientated manner potentially enhance their investment process.
To help allocators make an informed decision, ESG fund strategies and objectives need to be clearly defined and evaluated.
Aurum Hedge Fund Data Engine database containing data on just under 4,000 hedge funds representing in excess of $2.9 trillion of assets as at December 2020. Information in the database is derived from multiple sources including Aurum’s own research, regulatory filings, public registers and other database providers.
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