Review of Finance Vol. 26 No. 6 2022

Responsible Hedge Funds

Hao Liang¹; Lin Sun²; Melvyn Teo¹

¹ Lee Kong Chian School of Business, Singapore Management University , · ² Fanhai International School of Finance, Fudan University ,

Abstract

Hedge funds that endorse the United Nations Principles for Responsible Investment (PRI) underperform other hedge funds after adjusting for risk but attract greater investor flows, accumulate more assets, and harvest greater fee revenues. Consistent with an agency explanation, the underperformance is driven by PRI signatories with low environmental, social, and governance (ESG) exposures and is greater for hedge funds with poor incentive alignment. To address endogeneity, we exploit regulatory reforms that enhance stewardship and show that the ESG exposure and relative performance of signatory funds improve post reforms. Our findings suggest that some hedge funds endorse responsible investment to pander to investor preferences.

DOI

10.1093/rof/rfac028

Volume

26

Issue

6

Pages

1585-1633

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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