Stockholm (NordSIP) – With no seeming end in sight to the popularity and performance of sustainable investment strategies, each sector and asset manager has its unique approach to tackling the ongoing paradigm shift.
To understand the hedge fund industry’s perspective, we reached out to Bruce Amlicke, CIO of UBS Hedge Fund Solutions (HFS). Amlicke argues that ESG integration, and addressing gender imbalances in particular, is critical if global hedge funds are to create the culture necessary to attract the best talent in the industry.
A Long Track Record in the Hedge Fund Industry
Amlicke is a veteran of both UBS and the hedge fund industry. “My career started in 1986 at O’Connor Associates, an options trading firm, which Swiss Bank Corporation ultimately acquired before its merger with UBS in 1998. I have been a CIO since 2003, mostly at UBS, with the exception from 2004 to 2009, when working as CIO for the Hedge Fund Solutions business at Blackstone,” Amlicke says.
HFS is one of the largest global fund of hedge fund managers in the world. “Since 1998, we have grown to manage or advise on over US$38 billion. As an experienced multi-manager, we offer a diverse range of solutions to meet the demands of clients around the world,” Amlicke explains.
Hedge Funds and ESG
In his capacity as CIO of HFS, Amlicke is in a privileged position to assess the relevance of sustainability concerns and ESG integration for UBS Asset Management (UBS AM) and the hedge fund industry. “ESG is an area where UBS AM has been ahead of the curve. We have had portfolios managed in this way for quite some time.”
“However, the hedge fund industry, in particular, has been a laggard in the adoption of ESG. Inevitably, there has been a general shortage of sustainable products in the industry,” he adds. “Although our research has evolved over the years, HFS started researching sustainable hedge fund investments seven years ago. Internal inquiries within UBS Wealth Management initially sparked our interest. As a result, we’ve been looking at ESG offerings for quite some time now and are excited about the current opportunities.”
Gender Imbalances in the Hedge fund industry
Gender imbalances in the hedge fund industry are one of the top priorities for HFS, according to Amlicke. “Diversity, equity and inclusion matter deeply to how we run our business. Beyond UBS’s internal focus, a reverse inquiry from a large institutional client drove us to more actively consider female-led businesses and portfolio managers.”
According to a 2020 report by Preqin, a data, analytics and insights provider to the alternative assets community, males outnumber female CEOs and CIOs 20 to 1. “The facts are the facts. There’s a clear and material imbalance that we need to address,” Amlicke highlights. “Our focus is, first and foremost, to maximise returns for our investors. We also want to be part of the solution to these imbalances. Once we have satisfied our fiduciary duty, then another objective can come into play such as looking to support the development of women-led investment companies and portfolios, and improve their likelihood of raising capital.”
Shining a Light on the Best performers
While the reasons for this imbalance vary, Amlicke argues that there is room to rectify this ratio. “One of the main issues that any asset manager has to contend with is the struggle to find ‘day-one capital’ needed to start a business. It is perhaps even more of a problem for women. The best way to address the diversity imbalance among hedge fund managers is to look for new talent and intervene early.”
The gender imbalances also present a compelling opportunity for investors, he says. “There are economic benefits to this approach. As an early investor, we typically can find better economic terms, including fee discounts, and establish early strategic relationships with managers,” he says.
“Diversity also helps create a culture that attracts the best managers,” Amlicke explains. “Talent is everything in the hedge fund industry. Today, people enjoy a more inclusive work culture. Organisations that don’t internalise this and other ESG realities are going to run into potential headwinds and risks that they should be avoiding.”
“ESG is both an offensive and a defensive strategy. It mitigates the risk of people misbehaving and investing myopically, and focuses on companies that are cognizant of how sustainability concerns will drive investment flows in the future,” he adds.
“With ESG in mind, HFS seeks to shine a light on successful female investment decision-makers. Thanks to our global investment footprint and our sourcing network, HFS has compiled a database of approximately 300 female investment decision-makers in the hedge fund space. We have found a deep pool of investment talent with excellent performance. When people know that this is our focus, the talent tends to find us,” Amlicke says.
A Bullish Outlook for ESG
Looking ahead, Amlicke is optimistic. “I’m very bullish on ESG right now. There’s a perfect storm brewing with synergies between government policy, shifting investor preferences and corporate behavior evolving to embrace sustainability-minded consumers. This systematic societal alignment will maintain momentum for sustainable investing, drive significant flows, and propel performance.”
“While there is a focus on creating ESG investible products, it’s important to integrate ESG into all of our investment decisions. Sustainability is a source of alpha and it needs to continue to be mainstreamed,” Amlicke concludes.
Image courtesy of UBS HFS