Some people are concerned that hedge funds are not a responsible investment, on the grounds that hedge funds typically look at the short term and seek gains by exploiting market inefficiencies. As a result, for example, rather than seeking to address management inadequacies through governance they may either short the company or actively seek a takeover. The concern for some is that this may not necessarily be in the long term interest of the company, other shareholders or society as a whole.
Others argue that hedge funds improve the efficiency of the market and that hedge funds applying SRI principles might increase the incentive for responsible corporate behaviour.
There are also issues about the level of risk involved in hedge funds and their lack of transparency and disclosure, which is particularly relevant for Responsible Investors.
It is therefore important to fully understand how a hedge fund operates and the issues raised by critics of them if your charity is considering using hedge funds as a Responsible Investment option.