Responsible hedge funds

Responsible hedge funds

Hedge funds that endorse the United Nations Principles for Responsible Investment (PRI) underperform other hedge funds after adjusting for risk but attract greater investor flows, accumulate more assets, and harvest greater fee revenues. Consistent with an agency explanation, the underperformance is...

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Bibliographic Details
Main Authors: LIANG, Hao, SUN, Lin, TEO, Song Wee Melvyn
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2022
Subjects:
Responsible investing
ESG
Agency problems
Incentive alignment
Greenwashing
Hedge funds
Sustainable finance
Stewardship
Principles for Responsible Investment
Finance and Financial Management
Portfolio and Security Analysis
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/7030
https://ink.library.smu.edu.sg/context/lkcsb_research/article/8029/viewcontent/ResponsibleHedgeFunds_pvoa.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:Hedge funds that endorse the United Nations Principles for Responsible Investment (PRI) underperform other hedge funds after adjusting for risk but attract greater investor flows, accumulate more assets, and harvest greater fee revenues. Consistent with an agency explanation, the underperformance is driven by PRI signatories with low environmental, social, and governance (ESG) exposures and is greater for hedge funds with poor incentive alignment. To address endogeneity, we exploit regulatory reforms that enhance stewardship and show that the ESG exposure and relative performance of signatory funds improve post reforms. Our findings suggest that some hedge funds endorse responsible investment to pander to investor preferences.

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