Sustainable and Responsible Hedge Funds on the Rise

October 31, 2011

Assets in hedge funds and other funds devoted to environmental, social and responsible investing strategies jumped by 16 percent in 2010, according to survey results released by the Forum for Sustainable and Responsible Investment.

Sustainable and Responsible Investing (SRI) is making significant inroads into the world of alternative investing. Some $80.9 billion was invested in 375 alternative investment funds at the beginning of 2011. This reflects a 15.9 percent increase from the same period a year before.

“Alternative investments in sustainable and responsible investing are attracting a wide range of investors – high-net-worth families and individual ‘angel’ investors, mission-driven institutional investors such as philanthropic foundations, hospitals and faith-based institutions, and some of the largest and most prominent pension funds and private equity firms,” said US SIF CEO Lisa Woll.

Other key findings from the report include:

- 47 hedge funds with assets totaling $2.6 billion under management were focused on environmental, social and governance (ESG) criteria in 2010. However, this was the smallest group of alternative investment vehicles devoted to social investing, representing just 3.2 percent of total assets tracked.

- The largest group was Private Equity and Venture Capital funds, with 233 distinct funds and 62 percent of total funds in the ESG sector. However, in terms of total assets, PE and Venture Capital funds, at $33.9 billion, still ranked second to Property and Real Estate Investment Funds with a combined total of $44.3 billion spread among 95 different funds.

The majority of funds pursuing an ESG hedge fund strategy tend to focus in areas such as green building, climate change issues, clean technology, renewable energy and energy efficiency. “These managers look to produce market rates of return for their clients while helping to foster businesses, generate jobs or introduce products that will yield social and environmental benefits,” said US SIF Deputy Director and Research Director Meg Voorhes. You can view a chart detailing the most prevalent ESG criteria used by alternative investment managers at the SIF web site.

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