The Alternative Investment Management Association (Aima) has compiled a Responsible Investment Primer in partnership with law firm Simmons & Simmons to provide an overview of the rapidly evolving space.

The primer, which aims to help foster conversations between managers and investors, contains definitions of key responsible investment terms and explains how common forms of responsible investment may be applied to hedge fund strategies.

Socially responsible investment, environmental, social and governance (ESG) factors, impact investing as well as ESG outside the portfolio are explored.

Officials at Simmons & Simmons say that many questions still surround the idea of responsible investing and there may be some hedge fund strategies where it has little relevance.

Managers may be challenged by investors over responsible investment practices but are unsure whether they can even implement such strategies in a cost-efficient way.

“Hedge fund managers understand that investors want their principles to be reflected in their investments,” said Aima CEO Jack Inglis in a statement. “Aima is committed to working with our members and other industry stakeholders to ensure that hedge fund investors have the opportunity to invest in accordance with responsible investment principles should they wish to do so.”

Last year, the industry organisation surveyed 80 asset managers with $550bn in hedge fund assets under management and found an increasing level of demand for responsible investment across the hedge fund industry.

Around 40% of firms said they are already investing using responsible investment principles, with total assets in such investments worth $59bn – a little over 10% of the respondents’ combined hedge fund AuM. Significantly, one in five firms said they were committing at least 50% of their firms’ assets to responsible investing.

One section of the primer is dedicated to answering some of the more frequently asked questions on responsible investment and hedge funds. Topics outlined include the compatibility of responsible investment and short-selling, how hedge fund managers can demonstrate their commitment to responsible investment, and how the principles of responsible investment can apply to the management of a hedge fund.

All agree that the movement is investor led. In 2018 more than 70% of North American firms reported increased investor interest in the previous year, while half of European firms reported the same.

The primer can be found here.

Aima encourages investor, manager ESG dialogue on HFM InvestHedge.