Good ESG is now a differentiator for investors


It’s not all about performance anymore for hedge funds. For attendees at GAIM Ops Cayman, which is taking place this week at the Ritz-Carlton in Grand Cayman, Environmental Social Governance (ESG) is now one of the hottest topics.

Driven by investors, the focus on ESG has got fund managers focused on evaluating their operating structures to examine practices on things like gender pay equality, the employment of minorities and any questionable investments in things like ammunitions companies.

One conference participant said the focus extends to social responsibilities and attracting millennials as investors, as the hedge fund industry still tries to figure out what exactly constitutes best practice in this emerging area. But essentially fund investors want to know which parties the fund is aligning itself with, as well as what it is investing in.

“It has really been a reaction to events of 2007 and right now we are seeing a lot of sharing of ideas and thinking about how best to communicate that to investors,” she told Cayman Funds. “The issue has been creeping into discussions are people are seeking guidance on what to do.”

Another presenter said: “It’s amazing to see how ESG has caught on so fast. It is becoming a way that managers can differentiate themselves and it’s fascinating to see the industry move in this direction, when some start-up managers are just trying to keep the light on.”

While performance still remains the biggest driver for investors, ESG is taking a much more prominent role. At the heart of the debate is the need for managers to be more thoughtful about any activities, which could affect how they are perceived.

Some managers are looking at ratings for things like investor relations, for example, while there is always the concern that after a very negative news event such as a school shooting, it may be uncovered that a fund had significant investments in an ammunitions company.

“The conference has seen a real shift from pure operational issues to ESG which is a moving target for managers,” said one independent director attending. 

“The question is whether the fund is large enough to decide if it will screen its portfolio for risky investments or if it will adopt certain practices as policy. Is the policy going to be baked into fund documents or will you allow investors to dictate this issue, because it could be very expensive to segregate one investor?”

Environmental Social Governance, GAIMOps Cayman, Hedge Funds, Investment, Cayman Islands

Cayman Funds