bfinance: Hedge fund sector falling behind in ESG integration

The hedge fund industry is lagging its peers when it comes to integrating ESG investment factors, research from bfinance reveals.

Out of 256 investors surveyed, only 7% (and 13% of large investors with more than $25bn in assets under management) reported that their hedge fund and liquid alternatives managers currently offer “high integration” of ESG principles in their investment processes.

These figures are low relative to other asset classes, said bfinance, and even lower considering 45% of investors envisage that ESG adoption will be associated with some degree of relative outperformance among hedge funds over the next three years – a lower figure than that seen in other asset classes.

That expectation of relative outperformance rises significantly over the longer term. Over the next 20 years, 64% of asset owners expect that ESG integration will be positively associated with hedge fund outperformance, compared to 88% in equities, 85% in private equity and real assets (real estate, infrastructure) and 80% in bonds.

According to a survey of hedge fund managers conducted by BNP Paribas, Hedge Funds and ESG: Finding Their Place on the ESG Spectrum, published in October 2020, 56% said that the asset classes they use, in combination with short holding periods, make ESG integration “irrelevant,” “immaterial,” or “impossible to quantify.”

Investors, however, take a different view: Of the asset owners surveyed by bfinance, 60% indicated that ESG issues currently play a major role in manager selection, up from 41% in 2018.

“Hedge fund firms may be coming late to the revolution, but their tardiness does confer a singular advantage. Their managers can look to see where mistakes have already been made by some mainstream asset management houses and avoid those missteps,” said Chris Stevens, Director – Diversifying Strategies at bfinance. “When hedge fund firms, as an industry, decide to embrace ESG integration and move to meet investor demand, we expect the transition to happen swiftly.

“The Covid-19 crisis will not stall that progress – if anything, the crisis highlights the need for managers to think anew about future risks and opportunities in a changed world.

The report was unveiled as the UK Sustainable Investment and Financial Association (UKSIF) launched its policy vision. The organisation, whose membership manages more than £10trn in AUM, named making the UK a leader on ESG standards as its top priority, followed by facilitating a net-zero future. Building the green economy at home and safeguarding our natural environment were also named in the policy vision, as was supporting a ‘just transition’ for the UK’s workforce and encouraging diversity and inclusion in all its forms.

SpaceTech SPAC deals rocket in 2021

Specialist investment group Seraphim Capital has found that the Space sector has seen a record-breaking number of SPAC deals announced in the first quarter of 2021.

Research conducted by the firm has found that more than $7bn worth of equity funding has been dedicated to 11-space related SPAC deals scheduled this year. This compares to 6 deals in total prior to 2021, and compares to the total of $7.7bn in private finance invested across some 200+ SpaceTech companies in the whole of 2020.

Seraphim Capital described the boost in activity as a ‘watershed moment’ for the SpaceTech industry, and for SPACs being utilized as means to accelerate ability to access capital:

“We believe SpaceTech is at the nexus of mega-trends that will define societal change over forthcoming decades and has a unique role to play in addressing the world’s most pressing problems,” said James Bruegger, Chief Investment Officer, Seraphim Capital. “Radical advances in the Space sector mean a data and connectivity tsunami is about to transform the world as we know it, driving the next major paradigm shift in the global economy.

“Having so far largely weathered the worst of the impact of the downturn, the New Space economy is now primed for further strong growth in 2021 and beyond.”

U.S Bank bolsters crypto practice

U.S Bank has launched a trio of new initiatives to support clients in the cryptocurrency space.

The firm’s Global Fund Service arm will offer a new cryptocurrency custody product for customers with the engagement of a sub-custodian for fund servicing, while U.S Bank also announced its investment in Securrency – a developer of institutional-grade blockchain-based financial and regulatory technology.

The company was also selected to administer NYDIG’s ETF bitcoin fund this year, pending regulatory approvals.

“I am proud of how we came together from all areas of bank and brought forward our best thinking across our digital capabilities, product development, and technology to drive innovation in our Blockchain and Cryptocurrency practice,” said Christine Waldron, chief strategy officer for U.S. Bank Global Fund Services.

“We’ve been active in this space for years – ensuring we are always best situated to serve our institutional clients – and these latest initiatives demonstrate our ongoing commitment and enthusiasm to grow this market.”