The annual Hedgeweek US Awards acknowledge exemplary US fund managers and service providers in various categories. In an exclusive Q&A, Marieke Boudeling, Principal of ESG and Sustainability at Apex – one of the award sponsors – shares insights and trends in the alternative investment space as she answers five key questions uncovering 2023’s financial landscape, growth opportunities, demand, regulatory shifts, and the impact of ESG factors on hedge funds.
HW: Where do you see the most significant opportunities for growth in the coming year?
MB: The importance of environmental considerations has become clearer with wildfires, droughts, increasing sea levels, and severe weather conditions becoming more common. Companies are now addressing other related ESG matters like diversity, equity, and inclusion for better decision-making and company performance too. Being able to integrate ESG goals into the company valuation and investment decision-making process is a significant opportunity for fund managers to generate alpha and win investor mandates. ESG factors can be used in long/short, global macro, and other strategies.
We support our clients with integrating an ESG focus into their investment strategy, to align with changing investor and regulatory requirements. With an increase in related regulatory pressure in the US as well as the EU, we expect significant growth opportunities in the next few years.
HW: Can you outline the most impactful drivers of client demand in the coming year?
MB: With Generation Y accumulating and inheriting wealth and taking management and leadership positions at institutional investment firms, fund managers are now confronted with ESG considerations on the regular. Increasingly investors and allocators look at ESG track records when selecting fund managers. While strong track record of delivering alpha remains key, a hedge fund that addresses ESG will have access to a wider investor base.
To a larger extent, allocators acknowledge that ESG is part of their fiduciary duty, with some European investors even accepting slightly lower returns when the strategy has a strong ESG profile. This shift has an impact on how fund managers meet their investor’s evolving interests. As a result, fund managers are subject to new and increasingly stringent ESG regulations across all key markets. Whether now or within the next 12 months, these regulations will pose increasing challenges and resource requirements for managers.
HW: What have been the biggest drivers of growth within your business?
MB: One of the big drivers for us as a fund services provider is our ability to help managers integrate and manage ESG with our unique combination of platform and advisory services.
We have built a scalable platform that enables efficient data collection and management across all material ESG themes and key performance indicators for fund managers and investments, supported by a dedicated client success team. We have 150+ experts offering advisory support across the investment cycle from investment strategies to value creation at the fund level.
We receive an increased interest from fund managers who look to:
· Align to investor and regulator demands: Our solutions are fully aligned with market expectations.
· Increase data utility: Effortless data collection means less work, offering faster and high-quality results.
· Reduce risks: Independent data verification mitigates greenwashing risks.
· Increase fund-raising success: Sustainability strategies and insights to gain a competitive advantage.
· Increase value and ESG performance for successful exits: Improve ESG performance across investment through insights and advisory.
HW: How has your firm been focusing on ESG and sustainability?
MB: We believe it is important to “walk the talk”. Through group activities and by driving positive change in the industry, we are living out ESG values. Our purpose is to support a more sustainable, inclusive, and responsible future for the industry. For example, as a firm, we focus on philanthropy, environment and climate change, women’s empowerment, education, and social mobility.
HW: Are there ongoing or planned regulatory shifts for hedge fund firms to be mindful of?
MN: There are several anti-ESG shifts in specific states to be mindful of (e.g., House Bill 3 in Florida). Throughout the first six months of the year, 37 different state governments introduced over 156 anti-ESG bills.
On the other side, ESG regulations are coming in hot across the globe, and are increasing in scope.
Two important examples of regulatory shifts are:
Securities and Exchange Commission (SEC) – On a federal level, there are two SEC ESG regulatory proposals in the draft (ESG Strategy rule and Climate Disclosures rule) and one proposal accepted (names rule). The main purpose of these rules is to encourage transparency in the market on ESG integration. Even without these rules in place, current SEC exams are already increasingly focused on ESG, related to anti-fraud and misrepresentation (for example, DWS was fined USD 19mln for greenwashing). To avoid these exams, investors need to have a strong ESG strategy and even stronger processes, with nuanced and authentic communication towards stakeholders.
California – California is the first state to approve two climate bills encouraging large corporations that do business in California (both public and private) to report on their carbon footprints (>$1bn) as well as on their climate strategy (>$500m). To comply with these bills, investors need to have a strong climate strategy and carbon accounting capabilities.
Marieke Boudeling, Head of North America for the Apex ESG advisory team – With over seven years of experience in ESG and Sustainability, Marieke has supported over 30 GPs and engaged with hundreds of portfolio companies on how to successfully integrate ESG into their strategies.
