The manager of the University of Cambridge’s £5.5 billion ($7.3 billion; €6.6 billion) endowment fund has launched a set of sustainability principles for its hedge fund managers.
University of Cambridge Investment Management (UCIM) is looking for asset owners to sign on as endorsers for the principles, which were created in partnership with other endowments and pension funds.
Several asset owners involved in the principles’ development are expected to endorse them imminently, Responsible Investor understands.
Benoit Ramsay, UCIM managing director for marketable assets, told RI that many large asset owners now have exposure to hedge fund strategies to provide diversification and liquidity, with low correlation to markets.
“But there are a diverse range of hedge fund strategies, which makes the asset class complex to address from a sustainable investment perspective,” he added.
“Absolute return and credit represents over 20 percent of the Cambridge University Endowment Fund, so it is incumbent on us to think about how to decarbonise this part of the portfolio, as well as the others, as part of our overall net-zero objective.”
In 2020, the endowment committed to net zero across its entire portfolio by 2038, and aims to ditch all meaningful fossil fuel exposure by 2030.
UCIM sets out four principles for engagement with hedge funds.
They comprise adopting a tailored approach to climate-related expectations, prioritising engagement with managers whose strategies can have a real-world impact, adapting engagement to each manager’s strategy, and encouraging transparent emissions reporting.
The manager said it was difficult to implement a one-size-fits-all approach, given hedge fund strategies involve short holding periods, derivative exposure, or investments in securities where managers have limited scope to influence issuer behaviour.
Limited data availability and disagreement on how to measure, manage or report emissions are also a hindrance, leading many investors to exclude hedge funds from emissions reporting.
Application in action
UCIM has been applying its own engagement framework with hedge fund managers, sorting its managers by whether or not they are able to catalyse real-world decarbonisation.
For the former group, UCIM is seeking fossil fuel exclusions, an engagement programme and detailed emissions reporting, and with the latter, no new funding for fossil fuels and lighter-touch monitoring and reporting.
Ramsay told RI that the response from the endowment’s hedge fund managers has been positive.
“Some managers have wanted to dig into detail to understand more, but were ultimately happy to support us with this initiative,” he added.
Asked whether the endowment would consider ditching a manager that refused to engage on the principles, Ramsay said the fund has a long-term investment horizon.
“Even in this asset class, we seek to form long-term partnerships, say 10 to 20 years,” he said.
“The University of Cambridge has existed for 800 years,” Ramsay added. “We see our role as preserving the university’s capital so that it continues to exist and is supported by its endowment fund for another 800 years.”
Effective engagement involves an escalation strategy, the final step of which would be terminating a relationship, he said.
“But the extent to which we probe during initial due diligence whether managers are likely to be supportive of initiatives like this helps avoid such an outcome.”
