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21 March 2018       HFM Week

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Conversations about environmental, social and governance (ESG) factors with hedge fund managers circa 2011 were painful – there was “complete silence” from most firms in the industry, Stephen Kennedy, a senior portfolio analyst at Albourne Partners, recalls.

Fast forward to today, and although some managers still look blankly when ESG is raised, the situation has improved somewhat, he says. “[ESG] has definitely been more of an area where some groups have done a decent amount in terms of finding the data sources, thinking about it and how they want to integrate that without altering their basic, initial investment process.”

More importantly, investors have also been stepping up their focus on ESG, in terms of the stocks they choose to hold as well as the conversations they have with third-party managers.

“The number of conversations with our clients is increasing. Almost every European investor has some level of interest in this and many more US investors are talking about it,” says Will Bryant, a partner and portfolio analyst at the consultant.

The fact that more US investors are starting to show interest is significant, he adds, given that the majority of hedge fund capital still comes from there.

To reflect the changing focus of clients regarding ESG, Albourne is evolving its own efforts in this area. Over the last year, the specialist consultant, which advises on more than $400bn in hedge fund assets and $50bn of other alternative assets, has changed its ESG-focused questionnaire and has developed a new set of ratings for those managers that incorporate ESG into their investment process.