The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Socially Responsible Investing

  • From Vol. 9 No.45 (Nov. 17, 2016)

    How Hedge Fund Managers Can Design an ESG Investing Policy (Part Two of Two)

    There is no one-size-fits-all approach for private fund advisers that incorporate environmental, social and governance (ESG) factors into their investment processes (ESG investing), in part because many early adopters of ESG investing in the hedge fund space have done so at the request of their investors. Consequently, managers have had to develop a variety of approaches to meet the diverse needs of investors without uniform requirements. Some large institutional investors with ESG investing criteria seek to bypass commingled funds and allocate to separately managed accounts, thereby allowing them to dictate the ESG parameters that apply to their accounts. A benefit to an ESG-sensitive investor of investing in a separately managed account is that it provides transparency into the portfolio to (1) ensure the investment manager adheres to the account’s ESG investment parameters; and (2) evaluate the efficacy of the investment from an ESG perspective. Not all investors, however, have sufficient assets to pursue their mandates through managed accounts, forcing them to allocate to managers applying ESG investing policies to commingled funds. This second article in our two-part series discusses various options available to hedge fund managers when adopting an ESG policy and outlines some of the due diligence inquiries managers with an ESG policy should expect to receive from investors. The first article explored the development of ESG investing and its prevalence in the hedge fund space.

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  • From Vol. 9 No.44 (Nov. 10, 2016)

    The Past, Present and Future of ESG Investing in the Hedge Fund Industry (Part One of Two)

    The integration of environmental, social and governance (ESG) factors into the investment process has become a primary objective of certain investors. According to the 2014 Trend Report on Sustainable and Responsible Investing Trends issued by the Forum for Sustainable and Responsible Investment (SIF), mutual funds, variable annuity funds, exchange-traded funds and closed-end funds that incorporate ESG factors into the investment management process more than tripled in terms of assets under management from 2012 to 2014, accounting for $1.94 trillion in ESG assets in 2014. For a summary of an earlier trend report issued by SIF, see “More Hedge Funds Are Employing Environmental, Social and Governance Investment Criteria” (Nov. 3, 2011). Despite the significant amount of assets being directed into investment strategies that incorporate ESG factors, the general industry consensus is that the adoption of formal ESG policies by hedge fund managers remains fairly uncommon and that private equity managers continue to be comparatively better positioned to do so. This article, the first in a two-part series, explores the development of ESG investing and its prevalence in the hedge fund space. The second article will review advice from industry experts on considerations for managers wishing to develop an ESG investment policy, as well as the due diligence demands from investors seeking investment managers that incorporate ESG factors into the investment process. 

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  • From Vol. 8 No.11 (Mar. 19, 2015)

    What Are “Green Bonds” and Are They Materially Different from Other Investments?

    In the past few years, there has been tremendous growth in the issuance of so-called “Green Bonds,” a catchall term for debt issued to finance environmentally-friendly infrastructure and other projects.  A recent program explored the concept of Green Bonds, summarized the “Green Bond Principles” and described the current state of the private and municipal markets for such bonds.  The program featured Stuart K. Fleischmann and Robert N. Freedman, partners at Shearman & Sterling; Gordon G. Raman, a partner at Borden Ladner Gervais; and Tatjana Misulic, of counsel at Ballard Spahr.  Green Bonds may offer opportunities for hedge fund managers looking to market to pension funds and other institutions with investment guidelines that incorporate “environmental, social and governance” considerations.  See “United Nations White Paper Explains How Hedge Fund Investors Can Layer Environmental, Social and Governance Factors into Manager Selection,” The Hedge Fund Law Report, Vol. 5, No. 46 (Dec. 6, 2012).

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  • From Vol. 5 No.46 (Dec. 6, 2012)

    United Nations White Paper Explains How Hedge Fund Investors Can Layer Environmental, Social and Governance Factors into Manager Selection

    There has been a surge of recent interest in “responsible investment” in and by hedge funds.  However, the meaning of “responsible investment” is still being developed.  The term broadly refers to the integration of environmental, social and governance (ESG) investment criteria; and hedge fund managers are increasingly incorporating ESG factors into their investment strategies.  See “More Hedge Funds Are Employing Environmental, Social and Governance Investment Criteria,” The Hedge Fund Law Report, Vol. 4, No. 39 (Nov. 3, 2011).  However, there is little consensus on the impact of incorporating ESG criteria into hedge fund investments and strategies, or how to do so most efficiently and effectively.  In 2006, the United Nations (U.N.) Secretary-General launched the Principles for Responsible Investment (PRI), a set of aspirational standards designed to guide investors towards creating a sustainable global financial system that fosters good governance, transparency, integrity and accountability.  Hedge funds are important investment vehicles for many signatories to the PRI initiative.  To assist its signatories in their hedge fund investments, PRI recently issued a white paper discussing how hedge funds can incorporate ESG criteria into their investment strategies and how hedge fund investors can incorporate ESG factors into manager selection.  This article provides (1) an overview of PRI’s paper, including its assessment of the advantages and risks of various hedge fund investment techniques and strategies for ESG investors, and (2) a roadmap for responsible investment in and by hedge funds.

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  • From Vol. 4 No.39 (Nov. 3, 2011)

    More Hedge Funds Are Employing Environmental, Social and Governance Investment Criteria

    An October 2011 report (Report) by The Forum for Sustainable and Responsible Investment found that while hedge funds have historically comprised only a small proportion of the total number of alternative investment vehicles incorporating environmental, social and governance (ESG) investment criteria, the number of hedge funds employing ESG criteria increased markedly in 2011 over 2010, and hedge funds accounted for a greater share of ESG alternative funds in 2011 than in prior years.  Other categories of alternative funds employing ESG criteria – and thus following what the Report called a sustainable and responsible investing (SRI) strategy – include private equity, venture capital and real estate funds.  This brief article summarizes the portions of the Report relating to hedge funds.

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