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Hedge Funds Lag Peers In Integrating ESG Investment Factors

A new survey by consulting firm bfinance finds that the hedge fund industry is lagging its peers when it comes to integrating ESG investment factors. Out of 256 investors surveyed, only 7% (and 13% of large investors with more than $25bn in assets under management) reported that their hedge fund and liquid alternatives managers currently offer “high integration” of ESG principles in their investment processes.

These figures are arguably surprising given that, over the next 20 years, 64% of asset owners surveyed by bfinance expect that ESG integration will be positively associated with hedge fund outperformance.

According to a survey of hedge fund managers conducted by BNP Paribas, Hedge Funds and ESG: Finding Their Place on the ESG Spectrum, published in October 2020, 56% said that the asset classes they use, in combination with short holding periods, make ESG integration “irrelevant,” “immaterial,” or “impossible to quantify.” Investors, however, take a different view: Of the asset owners surveyed by bfinance, 60% indicated that ESG issues currently play a major role in manager selection, up from 41% in 2018.

Chris Stevens, Director – Diversifying Strategies at bfinance, said: “Hedge fund firms may be coming late to the revolution, but their tardiness does confer a singular advantage. Their managers can look to see where mistakes have already been made by some mainstream asset management houses and avoid those missteps. When hedge fund firms, as an industry, decide to embrace ESG integration and move to meet investor demand, we expect the transition to happen swiftly. The Covid-19 crisis will not stall that progress – if anything, the crisis highlights the need for managers to think anew about future risks and opportunities in a changed world.”

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