Friday 28th October 2016                 Change text size:

PRI paper calls for responsible investment in hedge funds

Photo: Zsuzsanna Kilian via stock.xchng

A discussion paper published by the UN-backed Principles of Responsible Investment (PRI) last week has called on investors and hedge fund managers to adhere to responsible investment practices.

The document sets out how investment strategies such as high frequency trading, leverage and shorting relate to responsible investment and how they can be implemented side-by-side.

It comes after PRI signatories called out for a better understanding of the risks associated with hedge fund investing – a form of investment that uses a multitude of instruments and a wide-ranging portfolio to generate relatively higher returns.

According to a 2011 PRI survey, 137 of the organisation’s signatories have “some exposure” to hedge fund investments, including 74 asset owners. It adds that “very few” hedge fund managers have explicitly stated a commitment to responsible investment.

Many signatories have significant allocations to hedge funds and the PRI has a growing number of hedge fund manager signatories”, said Rob Lake, director of responsible investment at PRI.  

However, there is currently no clear consensus on what being a responsible investor in hedge funds actually entails.

During the financial crisis and in its aftermath, hedge fund performance has varied widely and the extent to which particular strategies and instruments have the potential to contribute to market-wide risk has been the subject of unprecedented scrutiny by investors and policymakers.

This paper marks a first step in stimulating debate among PRI signatories and supporting asset owners to understand the implications of their hedge fund investments. Our aim is to equip them with the information they need to reach their own conclusions about whether their approach is consistent with their commitments to responsible investment.”

Paulus Ingram of APG Asset Management and chair of the PRI Hedge Funds Working Group added that the PRI’s paper “highlights that responsible investment is achievable in hedge funds as it is in other asset classes”.

As proven by the recent National Ethical Investment Week, investor appetite for green and ethical investing is at an all-time high, in the UK and across Europe. The PRI’s latest discussion paper is further proof that the wider investment universe also recognises the need for investment that benefits society and the environment, as well as balance sheets.

Further reading:

Responsible investment research given improved quality standard

Investors look to ethical options after banking instability

£11 billion invested ethically in the UK: infographic analysis

The Guide to Sustainable Investment 2012 (NEIW edition)

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