Singapore Hedge Fund

Alternative asset management in Singapore

Betting on hedge funds with a social conscience

INVESTORS can now consider niche hedge funds that place bets on companies based on their environmental, social and governance (ESG) conduct. Among these is the Good Steward Fund which is trying to expand to Asia, including Singapore.

The US-based fund – which currently manages US$330 million in assets – invests in global companies based on their ESG compliance, such as their safety records or whether they exploit child labour, said William Mills, managing director of the fund management Highland Good Steward Management.

‘Companies that fail against those principles, we won’t buy,’ Mr Mills said in an interview.

There are 119 unidentified companies that the fund does not invest in worldwide, including 31 companies based in Asia, based on reports from researchers hired.

The fund is set to work with a Korean research firm soon to raise its research coverage. This is likely to extend the number of blacklisted names to about 230, said Mr Mills.

For companies which pass, but have poor ESG ratings, the hedge fund may go ‘short’ on the stock.

‘In a hedge fund, we have the ability to cast a vote on two dimensions,’ said Mr Mills. ‘On the same grading, we will have a handful of companies by sector that on ESG factors, appear to be good candidates to go ‘long’.’

There are about 6,000 companies that the fund looks at, with 60 per cent consisting of US firms.

Mr Mills declined to say how much the fund has lost in the market meltdown but said that the fund’s losses were ‘a fraction’ of the fall in major indices.

But the fund has been also hit by withdrawals from investors, including one US investment bank that drew out US$60 million in assets from the fund last year.

The fund was started as many of its clients are religious-based organisations looking to invest in companies that were deemed socially responsible. But because of a broad definition of social responsibility, fund managers of the first fund started in 2004 dismissed too many firms.

‘We actually got a little bit out of balance in terms of complying with social policies and the impact it had upon returns,’ said Mr Mills.

‘For example, we may have excluded some companies from investment because of the percentage of their revenue that is earned from weapons production. With that blunt sword, we ended up excluding many more companies than we originally thought.’

The first fund was hence closed and re-opened in 2007, and managers followed the ESG guidelines set out by the United Nations’ principles for responsible investment. These are guidelines that look at how ESG issues are integrated within the investment practices of companies.

Despite the emergence of such social-conscious funds in the United States over the last few years, these have not gained traction in Singapore going by a check with some large faith-based organisations and churches here.

‘It is not within our guidelines to buy into hedge funds and other high-risk derivatives,’ said Gregory Lee, director of public relations at The Salvation Army, adding that its reserves are mostly parked in Singapore-listed equities and fixed cash deposits.

New Creation Church told BT that it does not invest in hedge funds, while City Harvest Church said that it does not invest with companies’ ESG qualities and practices as a criteria.

From the Business Times

Jean Viry-Babel
senior partner
VBK partners


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