Historically, Mercy Investment Services' experience with hedge funds is largely limited to the allocation to hedge funds who create share classes that meet our negative screens. Although hedge fund managers are increasingly recognizing the value of incorporating analysis of environmental, social, and governance risks within their portfolios, the number of true ESG hedge funds is rather limited. Our consultant integrates a review of managers' ESG capabilities in its Operational Due Diligence with the aim to provide an overview of their ESG capabilities, thus complementing the investment, operational and quantitative due diligence that they already complete on existing and potential funds.
After lengthy research and diligence, Mercy Investment Services funded its first ESG hedge fund manager in the current year; the fund utilizes 1) environmental, social, and governance factors to source and underwrite investments and 2) engagement to inspire investors and managers to incorporate sustainability into their decisions and to encourage business more broadly to address environmental and social challenges. Mercy Investment Services will continue searching for similar hedge fund opportunities to add to the portfolio in the future.