AQR Capital Management, the quant investment firm co-founded by hedge fund veteran Cliff Asness, has raised approximately $350m for its newly launched Adaptive Equity Market Neutral UCITS Fund, which blends ESG principles with long-short market strategies, according to a report by Bloomberg.
This fund, which was announced last month, looks to short stocks that AQR deems to have poor ESG profiles while holding those that score higher on ESG metrics.
“We don’t believe that simply being long or short on any ESG characteristic is inherently financially attractive,” said Michele Aghassi, AQR’s principal and head of sustainable investing. “It really depends on the specific ESG factor in question.”
The debate over whether ESG investing can deliver market-beating returns while promoting sustainability remains contentious, both in finance and academia. The topic has also become politically charged, especially in the US, where some Republican-led states have imposed restrictions on firms that prioritise ESG strategies, arguing that such practices may compromise fiduciary duties.
In contrast, Europe is integrating ESG considerations into its financial regulations, making the AQR fund particularly appealing to investors within the European Union.
Critics of ESG investing often highlight the underperformance of traditional ESG-linked sectors, such as wind and solar energy. These sectors have struggled in recent years, particularly as rising interest rates have disrupted the financial models that previously supported capital-intensive renewable energy projects. For instance, the S&P Global Clean Energy Index has dropped nearly 30% since the start of 2023, while the S&P 500 has gained over 40% during the same period.
Amid these challenges, even dedicated ESG investors are increasingly looking to hedge their portfolios. Aghassi noted that AQR’s fund is designed to mitigate risks, ensuring that ESG considerations do not compromise potential returns.
“Thanks to the broad scope of our investment universe, we can accommodate investors’ ESG preferences while maintaining the return potential of the portfolio,” Aghassi said.
