ESG Investing

ESG hedge fund strategies offer unique advantages over their active long-only and passive peers, such as:

• Sustainable and socially responsible returns that are uncorrelated to stock and bond markets
• The ability to capture both upside and downside through shorting
• A wider range of innovative ESG strategies
• Risk mitigation during periods of increased volatility
• The ability to engage with management to enact positive change

Accessing the ESG Fund Universe

HFR Investments provides institutional investors with flexible structuring options to access the rapidly expanding ESG hedge fund universe: direct allocations, custom ESG fund of funds, and investable HFR ESG Indices.

We offer ESG Advisory Services to assist institutional allocators in underwriting, selecting, and monitoring ESG hedge funds. These services are available for asset owners as well as consultants and OCIO businesses to help them better serve their clients.

ESG Hedge Fund Indices and Trackers

Learn about our unique approach to indices.

Lean on Our Investing and Regulatory Expertise

Navigating the mutable regulatory landscape can be daunting.

By utilizing our platforms, you can ensure compliance with all relevant regulations. From regulatory filings to changing reporting requirements, rest assured that your investments adhere to industry best practices.

Frequently Asked Questions

Why should allocators consider ESG when investing in hedge funds?

Like any other piece of an allocator’s portfolio, ESG factors can provide hedge fund managers with additional insight that aims to improve risk-adjusted returns. ESG strategies have evolved far beyond simple positive/negative screening, especially in the hedge fund space. Most importantly, ESG hedge funds can offer something their active long-only and passive peers cannot: sustainable and socially responsible returns uncorrelated to stock and bond markets, investments suitable for an ESG mandate with upside and downside capture, and risk mitigation during periods of increased volatility.

Do ESG strategies limit your investment opportunity set?

While some ESG strategies such as exclusionary screening might reduce their investable universes, ESG hedge fund strategies vary widely and offer an array of opportunity sets, even amongst poorly rated firms and issuers. Many ESG long/short strategies utilize ESG data to identify viable short targets. Rather than limit a portfolio manager’s ability to provide risk-adjusted returns, incorporating ESG into the investment process can potentially enhance a manager’s investment opportunity set.

What is greenwashing and why should I care?

At its simplest, greenwashing is a marketing ploy—whether it’s a puffed-up PR spin on a notorious polluter, or a fund manager that claims their strategy is more sustainable or impactful than they’re letting on. If allocators are considering ESG hedge fund strategies, it’s important that they understand the manager’s investment process thoroughly and uncover greenwashing during the due diligence process.

How do hedge funds address climate change?

Hedge fund strategies can address climate change in several ways. Many funds invest in firms whose technology reduces carbon emissions, addresses the effects of climate change, or allows for energy transition to renewables. Other strategies include active engagement, where managers work with portfolio companies to reduce negative climate impact, and classic activist strategies. Hedge funds may also trade carbon credits in regulated carbon markets or carbon credit futures as part of a climate-related strategy.

Why should hedge fund investors care about climate change funds?

The accelerating transition to renewables and green technology will fundamentally change our world. Energy transition is also going to leave some traditional producers behind, especially if they are unprepared to adapt, leaving them with costly stranded assets. In disruptive sectors such as energy transition, green technology, and carbon credits, it is crucial to deeply understand firms, technology, markets, and competitors—and hedged strategies may also reduce volatility in these turbulent areas.

How can you measure a fund’s carbon intensity, and what challenges does it pose?

Totaling the portfolio’s greenhouse gas emissions is perhaps the first and most obvious way to track a fund’s climate impact. However, this can pose several challenges, including coverage, accuracy, backwards-looking data, and impact over time. Carbon datasets tend to be more widely available for larger firms, which can make it harder to measure small and mid-cap portfolios, and emissions data is self-reported.