Responsible Hedge Funds

Review of Finance, forthcoming

62 Pages Posted: 23 Jun 2020 Last revised: 2 May 2022

See all articles by Hao Liang

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Lin Sun

Fudan University

Melvyn Teo

Singapore Management University - Lee Kong Chian School of Business

Date Written: May 26, 2020

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 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.

Keywords: Principles for Responsible Investment, Greenwash, Hedge Funds, Walk the Talk, Agency Problems, Operational Risk, ESG, Stewardship

JEL Classification: G23, Q56

Suggested Citation

Liang, Hao and Sun, Lin and Teo, Melvyn, Responsible Hedge Funds (May 26, 2020). Review of Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=3610627 or http://dx.doi.org/10.2139/ssrn.3610627

Hao Liang

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Lin Sun

Fudan University ( email )

220 Handan Road
Shanghai, 200433
China

Melvyn Teo (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
+65 6828 0735 (Phone)
+65 6822 0777 (Fax)

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