JPMorgan Chase & Co has found an effective way to invest in ESG. Its Multi-manager Sustainable Long-Short Fund’s gains have exceeded expectations. The investment firm shared a little secret behind its success.
ESG investing: a glimpse into the present state
A lot of environmentalists have been urging for more ESG investing. Accordingly, the interest in ESG investing has been growing rapidly in recent years. BNP Paribas SA survey in October revealed that ESG-focused funds generated around $71 billion of new investor money. The funds only came from April to July alone. Sadly, the survey also revealed that a big part of the hedge funds failed to integrate ESG in their investments.
The common practice of hedge funds that focus on ESG is not really effective in generating returns. First off, companies that straightly violate ESG criteria, such as weapon markers and casino operators automatically go to the blacklist. This really limits the choices to invest in. Not to mention the amount of ESG-dedicated hedge funds are also limited. Moreover, ESG adoption is not as popular among managers with assets below $10 billion. Meanwhile, those managers often are the smaller, nimble funds with best returns.
As quoted from Bloomberg, Singapore-based hedge fund specialist in JPMorgan’s alternative asset unit, Lyn Ngooi, said, “to focus on these only would narrow the universe for investors and does not necessarily lead to the best stock pickers for a portfolio.”
JPMorgan Chase & Co’s strategy in ESG investing
JPMorgan’s alternative asset management arm managed to secure its funds in ESG investing. Ngooi said that this global fund that focuses on ESG issues is by far the first. Noted from Bloomberg, JPMorgan’s Multi-manager Sustainable Long-Short Fund recorded a 13% higher gain since the kickoff last February. The result accounts twice than the advance of the MSCI World Index.
In commencing with its alternative investment, the JPMorgan team starts by identity ESG themes that have the potential to win and lose. Quoted from Bloomberg, among them are social empowerment, resource efficiency, technology for sustainability, health and wellness and energy transition. The unit then commences with selecting outside managers to run investments in separate accounts. Sustainable themes will become the focus rather than the existing hedge funds.
JPMorgan itself has researched around 125 hedge funds globally. The investment bank lays off the decision on five managers. Within the choices, none of the firms is reportedly marketed itself as a dedicated ESG fund. Unfortunately, the identity of the manager and the stock pick itself remain untold by JPMorgan due to regulatory constraints.
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