Sustainable and Responsible Investing – Taking Steps, Leaping Ahead
Erik Eidolf
Harcourt AG
April 2009
Introduction
Amongst a backdrop of turbulent financial markets, the concept of sustainable and responsible investing (SRI) is continuing to develop at a rapid pace. An ever–increasing number of institutional investors around the globe consider and implement SRI1 in their investment practices. This also presents opportunities for hedge funds to cater to an increasingly SRI-oriented client base. This article describes the most recent developments within the SRI industry, the prevailing current trends, as well as the effects this is expected to have on hedge funds.
"You better start swimming or you’ll sink like a stone!" The mid-1960s proclamation of Bob Dylan rings very true today, with the capital markets and financial system having been shaken to their core in 2008. This shakeout has been forceful across all parts of the financial industry, and painful as well as challenging for all market participants.
Hedge funds were not spared either. Despite having fared better than traditional investments, hedge funds on average have not achieved their absolute return targets. However, as hedge funds are exposed to alternative risk premia which are not accessible through long-only vehicles, their risk/return characteristics will remain superior and exhibit low correlation to traditional investments. It is therefore our conviction that hedge funds will continue to have a place in diversified institutional investment portfolios.
