Almost 90 per cent of investors globally are asking their alternative fund managers for environmental, social and governance products, according to new research from EY, but the APAC region is yet to catch up in devoting resources to the segment.
The finding has come from the 2020 EY Global Alternative Fund Survey, which has focused on the challenges faced by the industry through COVID.
Total allocations to alternative investments have remained relatively stable, however, the competition between asset classes has intensified. Following a multi-year trend, global allocations to hedge funds shrunk to 23 per cent from its previous 33 per cent in 2019 and 40 per cent in 2018.
Meanwhile investments in private equity and venture capital remained stable at 26 per cent, while investments in private credit increased from 5 per cent to 11 per cent as many market participants anticipate COVID initiating a credit cycle creating opportunities for managers.
EY Asia-Pacific wealth and asset management leader Elliott Shadforth said while many fund managers saw a depleted performance in the first half of the year, they are experiencing stronger-than-expected rebounds in the second half.
But allocators are increasingly focused on ESG products and socially responsible investing, also wishing to partner with managers who prioritise ESG policies.
Globally, 88 per cent of investors were seen to be regularly speaking with their fund managers on how ESG is incorporated into their decision-making processes.
While investment trends and client engagement on ESG across the APAC remained high, EY noted alternative funds have more work to do when it comes to resourcing for ESG at their organisations.
Less than half (46 per cent) of respondents said they have a dedicated individual responsible for managing ESG at their organisation, well below the global industry average of 80 per cent of companies with dedicated teams.
“If not for the global pandemic, it’s possible that 2020 would have been remembered as the year that ESG dominated headlines within the business and economic environment,” Mr Shadforth said.
COVID hit client relationships
All of the fund managers surveyed in the APAC region reported their client relationships had felt impacts from COVID.
Private equity managers copped a harder brunt of the crisis – 75 per cent of respondents noted the pandemic had a major effect on their client relationships, compared to only 38 per cent of hedge fund managers.
Almost two-thirds of the hedge managers however reported their relationships with US pension funds had been most affected.
Looking ahead, most alternative managers in the region believe their way of fundraising will return to normal, while 34 per cent of private equity respondents and 27 per cent of hedge funds recognise that remote working may bring permanent changes to how they market products with clients.
Staff management was another area of focus for the survey. Talent retention was voted as the number one priority for 83 per cent of private equity firms and 55 per cent of hedge funds in the APAC region, as managers face a more remote workforce.
However, there is room for growth in awareness of diversity and inclusion. A quarter of the APAC’s hedge fund managers (27 per cent) and private equity firms (25 per cent) have only an informal diversity and inclusion policy in place, while the majority have no formal policy whatsoever (67 per cent and 58 per cent respectively).
“There are a number of reasons that diversity at alternative fund managers is critical, but investor behaviour and expectations are near the top of the list,” Mr Shadforth said.
“Now is the time for alternative fund managers to step up and critically examine how they are thinking about talent attraction, development and retention to ensure a more diverse workforce. The experiences and knowledge from these individuals will prove to be fruitful in generating new ideas that ultimately benefit the manager and its investors.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].