JP Morgan Alternative Asset Management (JPMAAM) has come to the market with a Multi-Manager Sustainable Long/Short fund
The product will take positions in long/short equity managers as well as single trades with long positions focusing on companies screened using JPMAAM’s proprietary ESG ratings framework and short “sustainability laggards”.
It will focus on long-term global sustainable themes such as energy transition, resource efficiency, empowerment, health & wellness, and technology for sustainability.
Jamie Kramer (pictured), global head of JP Morgan Asset Management’s Alternatives Solutions Group and co-portfolio manager of the Multi-Manager Sustainable Long/Short Fund, said; “The long/short equity managers we work with have already embraced ESG as part of their risk management. They’re now focused on capturing sustainable alpha opportunities. They, like us, believe it’s possible to generate sustainable alpha and have a positive impact at the same time. They’re actually further ahead in their thinking than many of their peers. There’s still a lot of educating to do when it comes to hedge funds and ESG; something we remain focused on and are doing something about.”
She added that “sustainable alpha” can be generated where the “impact of structural changes is under appreciated and incorrectly priced”.
The fund has been seeded by the group with $100m.
Patrick Thomas, head of ESG investing at Canaccord Genuity Wealth Management, said he can see demand for this type of product further down the line: “This is probably a good acid test to see whether ESG works as a factor in its own right, in the same way as buying quality or small caps. It will also be a good measure of the performance of ESG indices, to see if they have been driven more by sector weighting over the past decade (heavy in technology, light in energy) or style (heavy in growth, light in value).
“Traditional long short strategies should in theory translate well into ESG strategies. Selling short the companies doing badly in ESG terms and buying the ones that are doing well is a seductive pitch. I think the biggest problem is likely to be the time horizon. Bad companies can be bad for a while without it hitting their share price. Do investors have the patience (and belief in the concept of ESG) to stick with such a strategy?
“I would also question the reliance on third party data sets and whether enough rigour was being applied to into identifying specific ESG problems.
“I think this is a style of product which is likely to evolve over time, but we are probably not in a place where it makes sense just yet. Soon though.”
Meanwhile, Daniel Bland, investment manager at EQ Investors, is more apprehensive about investing in the strategy. He said: “Our strategies typically focus on achieving a positive impact alongside financial return, providing capital to businesses whose products and services are solving environmental or social problems. This strategy seems to be trading around themes rather than providing support as a long-term investor.
“If there was an engagement piece around the positioning, to change behaviour / product or service mix then this approach could be more interesting, creating positive change and potentially arbitraging lower cost of capital for business with lower ESG risks, if that opportunity exists. We also see some difficulty with ESG rating frameworks, which remain disparate in terms of their scoring.
“At this moment in time we prefer to invest in long equity and bond strategies, to provide capital as long-term investors to businesses solving problems.”
Last week, J. P. Morgan Asset Management (JPMAM) unveiled a series of initiatives to boost its commitment to sustainable investments including the development of a proprietary ESG framework, prioritising investment stewardship work in five key areas, as well as signing up to Climate Action 100+.
