New York (HedgeCo.net) – Sustainable and responsible investing (SRI) is making major strides in the hedge fund arena, according to a new report prepared for the US SIF Foundation by the Center for Social Philanthropy at the Tellus Institute.
According to “Sustainability Trends in Alternative Investments in the United States,” $80.9 billion was invested in 375 alternative investment funds incorporating environmental, social and governance (ESG) criteria at the outset of 2011, reflecting a 15.9-percent growth in combined assets since the beginning of 2010, when 346 alternative funds managed a combined total of $69.8 million.
The alternative investment funds tracked in the report span the asset classes of private equity and venture capital funds, property investment funds and hedge funds, and they utilize a broad range of approaches to ESG criteria and themes.
“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.” US SIF CEO Lisa Woll said, “The growth of the SRI alternative investment market is being supported by an ecosystem of investor networks and field-building organizations working to develop reliable metrics to evaluate the social and environmental returns of these funds.”
Key findings include:
- Private equity and venture capital funds led the field of ESG alternative investment vehicles numerically with 233 distinct funds in 2011, or 62 percent of total funds tracked. In asset-weighted terms, however, private equity and venture funds are the second largest of the three asset categories studied, with $33.9 billion in combined assets under management, or 41.9 percent of the ESG alternative investment market.
- Property and real estate funds managed 54 percent of total assets tracked in 2011, with a combined $44.3 billion under management in 95 distinct funds.
- In 2011, 47 hedge funds were identified with a total of $2.6 billion under management. Representing just 3.2 percent of total assets tracked and 12.5 percent of funds numerically, hedge funds are the smallest group of ESG alternative investment vehicles.
- Environmental criteria were predominant among ESG alternative investment funds in both numerical and asset-weighted terms, with $68.9 billion of total assets incorporating an environmental theme. Environmental criteria were followed by social criteria, which are considered by $48.8 billion of the assets studied, and then by governance criteria, which affected $37.5 billion. This illustrates the considerable overlap in ESG criteria within alternative investment funds. In 2011, 73 percent of alternative investment funds included multiple ESG criteria in fund management.
“The majority of the alternative fund managers we reviewed consider several ESG criteria simultaneously, but environmental factors predominate.” US SIF Deputy Director and Research Director Meg Voorhes said, “In particular, we see interest in 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.”
Editing by Alex Akesson
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