A report by the Deloitte Center for Financial Services points to impact investing as an growth opportunity for hedge funds seeking alpha in a Smart Beta world. The authors define impact investing as “the intentional allocation of capital to generate a positive social or environmental impact that can be—and is—measured.” The latest annual survey, conducted by the Global Impact Investing Network (GIIN), estimates that investment strategies designed to align profit with purpose now manage assets of more than $77 billion, with public equity representing less than 10 percent of the total, compared to the $3.1 trillion in hedge fund assets under management. Few hedge funds follow an explicit ESG/SRI mandate, but they increasingly use non-financial risk metrics in combination with traditional investment criteria. At present, no hedge fund manager features prominently in the impact investing space, giving early adopters a possible competitive advantage. The report notes that a growing class of investors wants to see these types of products within their suite of investment options.
Eaton Vance’s acquisition of Calvert Investment Management also highlights the growing interest in sustainability among mainstream asset managers, and so does the growing list of UN-PRI signatories.
At the same time, research continues to debunk the lingering assumption that ESG integration necessarily diminishes returns. The inaugural Impact Series report from the Barclays Social Innovation Facility finds that:
Bond portfolios with high ESG scores have outperformed low-ESG portfolios with matching risk attributes in the past seven years. This return advantage is particularly pronounced for portfolios with high Governance scores.