Home Alternative Investments Alts managers plunge into ESG transformation

Alts managers plunge into ESG transformation

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Suzanne Tavill, Sydney-based partner and head of responsible investment at StepStone Group Inc., an alternative investment consulting and money management firm, said the definition of ESG is expanding.

“The range of topics falling under ESG continues to increase, and each one is becoming more complex, e.g., data privacy, inclusion and climate change,” Ms. Tavill said in an emailed response to questions. “The latter is one of the biggest learning curves for the industry requiring considerable efforts at both the manager (corporate) level and at the asset level.”

StepStone Group oversaw $570 billion in assets, including $134 billion in AUM as of March 31.

Even so, StepStone executives have seen an acceleration in manager ESG practices worldwide in the form of widespread adoption of ESG policies, “which are the precursor to more comprehensive ESG practices” within their investments, Ms. Tavill said.

But to have a competitive ESG practice, managers have to spend on resources — both people and systems to track progress and implement strategies. ESG is so multifaceted and fast-evolving that “giving this responsibility to someone junior or as a ‘part-time’ role quickly is not sustainable,” Ms. Tavill said.

And these new ESG-focused executives have to operate in a private markets world in which there is a dearth of data, even less than in the public markets, said Jennifer Signori, a New York-based managing director leading impact investing in private equity at Neuberger Berman.

While there are still data challenges, there has been progress in the form of a number of initiatives in which managers are collaborating with other stakeholders with a common goal, Ms. Signori said. For example, the Institutional Limited Partners Association’s ESG Data Convergence Project is creating core metrics and common definitions to streamline private equity’s historically fragmented approach to ESG reporting, she said.

Hedge fund managers are also increasingly paying more attention to ESG, said Tristan Thomas, Chicago-based managing director of portfolio strategy for 50 South Capital’s hedge fund investment team.

“Hedge funds have been a little later to the party” than other types of alternative investment managers, Mr. Thomas said. 50 South Capital is an alternative investment subsidiary of Northern Trust Asset Management. 50 South has $12.3 billion in assets under management and advisement.

In 2019, 50 South asked managers in its hedge fund-of-funds strategy for their ESG policies and did not receive many back, he said. The majority didn’t have one, Mr. Thomas added.

“Last year, every manager we work with had an ESG policy in place,” he said.

Paul Lanna, a partner in the New York office of secondary market alternative investment manager Coller Capital Ltd., said managers such as Coller are building up the size of their ESG teams “and the reach of those teams as to what to invest in and how to invest, not just pre-investment but post-investment.”

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