Tuesday, July 26, 2011

Hedge fund trimmer

SIP IT

A few weeks ago I went to a “pitch” for pension business by the Hedge fund arm of a large international finance company. It was a confident and well delivered presentation. The “only” problem was that the fund managers failed to even consider Pension fund “Statement of Investment Principles” (SIP). 

By law each pension fund has to have a SIP. Many SIP's requires fund managers to put their money only in “socially responsible investments”. This is not just “tree hugging” but based on an important principle that investments in companies that do not for example exploit child labour, damage the environment treat their workers badly or bribe and corrupt local officials will produce superior investment returns. Fund managers also have to engage with companies and vote their shares. They need to have an audit trail that can prove what they are doing. 

Your typical hedge fund does none of this. No disclosure, no transparency and little regulation. Even if they had the will (which I doubt) to act in a socially responsible manner they could not even begin to explain how they could confirm with a decent SIP. Never mind how they could claim that they confirm with UN PRI (which is even more prescriptive than many SIP’s).

So, employer and employee trustees and all other representatives on pension’s scheme check your SIP and see how it deals with Socially Responsible investment. If it is no good then try and change it. If it is any good then ask all your fund managers (and prospective ones) how they apply it. It they can’t or won’t engage then sack ‘em.

(PC as always)
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