This report shows public data only. Is this your organisation? If so, login here to view your full report.

Cheyne Capital Management (UK) LLP

PRI reporting framework 2019

You are in Direct - Hedge Funds » Investment process

Investment process

HF 06. ESG data, research and other resources used

Please describe the ESG resources and tools used in your investment decision-making process.
Category of ESG
Reason for use
          Cheyne's Credit team carry out governance screening upon issuers within the investment universe alongside this screening process, other ESG factors are analysed on a per issuer basis as that particular credit comes into focus for the investment team.
        
          
        
          
        
          
        
Select and explain how these resources are incorporated into the investment and risk management process?
Category of ESG
Investment/risk management process
Additional text (optional)
ESG data (proprietary, 3rd party, etc.)
          
        

HF 07. ESG incorporation into quantitative and fundamental analysis

07.1. Does your organisation uses quantitative analysis?

07.2. Does your organisation uses fundamental analysis?

Please indicate at which level ESG is incorporated into the analysis.
Fundamental approach
ESG incorporation
Outcomes and assessment/review
          Where governance analysis of corporate debt issuers has failed to meet our best practice screens we have reduced exposure within our portfolios and removed names within the investment universe.

For the real estate team ESG is an important consideration of financing provision and the projects undertaken involve ESG aspects within the property's development.
        

07.3. Additional information [OPTIONAL]


HF 08. Changes to the RI incorporation process over the past 12 months

08.1. Could you please indicate whether there have been any changes to your RI incorporation process over the past 12 months (e.g. additional resources, information sources)?

08.2. If yes, please describe them.

          Work commenced with Novus, a portfolio analytics and data solutions system, to integrate MSCI ESG data metrics into return allocation analysis for the Credit team portfolios.
        

HF 09. Integration of Active Ownership

09.1. Please select and explain how active ownership practices are integrated into investment decisions.

          In relation to direct lending, originated by the real estate team, borrowers are engaged with to ensure that environmental aspects are considered within the development being undertaken.  


Governance due diligence is carried out by completing KYC on all borrowers to ensure their creditworthiness and good-standing.
        

HF 10. Examples of ESG risks/opportunities in investment decisions

10.1. Please provide examples of where ESG risks and opportunities were incorporated into the investment decisions over the past 12 months.

Hedge Funds Strategy
Event driven
ESG factors
Environmental|Social|Governance
ESG risks/opportunities
          ESG considerations included the following aspects; Social, sustainability, governance, public health, safety and environmental
        
Financial risks
          The investment memorandum for Deal A detailed the credit and currency risks
        
Scope and process
          The investment memorandum for Deal A detailed the investment opportunity, market data, ESG considerations and other financial analysis
        
Outcomes
          We are now invested in the particular name
        
Hedge Funds Strategy
Event driven
ESG factors
Environmental|Social|Governance
ESG risks/opportunities
          ESG considerations included the following aspects; Social, sustainability, governance, safety and environmental
        
Financial risks
          The investment memorandum for Deal B detailed credit, market and liquidity risks
        
Scope and process
          The investment memorandum for Deal B detailed the investment opportunity, rationale, indicative returns, ESG considerations and other financial analysis
        
Outcomes
          The investment was approved internally but did not proceed as financing was no longer required by the company.
        
Hedge Funds Strategy
Event driven
ESG factors
Environmental|Social|Governance
ESG risks/opportunities
          ESG considerations included the following aspects; Social, sustainability, governance, public health, safety and environmental
        
Financial risks
          The investment memorandum for Deal C detailed credit, market and liquidity risks
        
Scope and process
          The investment memorandum for Deal B detailed the investment opportunity, rationale, indicative returns, details of due diligence, ESG considerations and other financial analysis
        
Outcomes
          We are now invested in the particular name
        
Hedge Funds Strategy
Relative value
ESG factors
Governance
ESG risks/opportunities
          The risk highlighted as part of the governance screen is that senior management incentive structures favoured growth over profitable growth
        
Financial risks
          The incentive structure led to serious contract mispricing, particularly in the power division
        
Scope and process
          The ongoing governance screening, centred on norms based and best practice benchmarks, undertaken by the investment analysts produced negative indicators in relation to the company’s incentive structure.
        
Outcomes
          Exposure was reduced to the credit
        
Hedge Funds Strategy
Relative value
ESG factors
Governance
ESG risks/opportunities
          CEO lacks experience in auto sector.  Family retains control of the company through a dual-stock structure, which protects management from the market for corporate control.  Board lacks diversity and independence.
        
Financial risks
          Failure to tackle operational structure expeditiously.  Failure to seek risk-sharing partners in investing for technological disruption.
        
Scope and process
          Ongoing screening of governance and management by analysts provided red flags relative to key competitors.
        
Outcomes
          Took sector exposure to key competitor rather than this entity.
        
Hedge Funds Strategy
Relative value
ESG factors
Social|Governance
ESG risks/opportunities
          Carcinogenic chemicals in product of acquired company.  Management slow to assess risk.
        
Financial risks
          Multi-billion dollar lawsuits; impact of reputational damage on sales of other products.
        
Scope and process
          Highlighted by ongoing analysis of the company.
        
Outcomes
          Reduced exposure to the company by dilution.
        
Hedge Funds Strategy
Relative value
ESG factors
Environmental|Social
ESG risks/opportunities
          Real estate direct lending in relation to the redevelopment and regeneration of an ex fuel filing station, where affordable residential housing was delivered as the main driver for the project.  The redevelopment alongside housing, provided a business hub at more affordable rents for the sole use of local community businesses.
        
Financial risks
          The key financial risk areas are - borrower default risk, market risk leading to declines in the value of real estate assets which could further impact recovery rates in the event of a borrower default, currency, interest rate and pre-payment risk are also considered.
        
Scope and process
          As part of the deal assessment the Real Estate team considered: 
The quality of the regeneration plan, to help revive a once deprived area of London; 
The quality of the build project to ensure that the latest building standards were to be applied to ensure a sustainable product.
        
Outcomes
          Funding provided for the development to proceed
        
Hedge Funds Strategy
Relative value
ESG factors
Environmental|Social
ESG risks/opportunities
          Real estate direct lending involving the redevelopment of an historic asset that had been left to degrade over a long period of time. The building included a historic convent which is well known in the city, which was to be restored to its former glory and providing a high quality serviced apartments within the project.
        
Financial risks
          The key financial risk areas are - borrower default risk, market risk leading to declines in the value of real estate assets which could further impact recovery rates in the event of a borrower default, currency, interest rate and pre-payment risk are also considered.
        
Scope and process
          As part of the deal assessment the Real Estate team considered: 
The quality of the regeneration plan, with particular consideration of the historic focus of the redevelopment; 
The quality of the build project to ensure that the latest building standards were to be applied to ensure a sustainable product.
        
Outcomes
          Funding provided for the development to proceed
        

10.2. Based on your example(s) provided above, please specify whether the incorporation of ESG factors affected the risk-adjusted returns of your hedge funds.


HF 11. Derivatives products and ESG impact

11.1. Do you use derivatives instruments as part of your hedge funds strategies and/or Funds of Hedge Funds?

Please select all the applicable categories of derivatives used.
Listed/OTC
Category of derivatives

11.3. Could you please explain whether and how these derivatives impacted the risk-adjusted returns of your hedge funds investments?

Impact

Outcomes

          CDS securities are the majority of the portfolio composition for the Credit funds so are the driver of returns within those funds.  Other funds use FX derivatives as currency hedges to protect the portfolio against currency fluctuation risk.
        

11.4. Would you indicate whether the use of derivatives triggered ESG risks/opportunities at the fund level?

11.5. Additional information [OPTIONAL]

          
        

Top