TIFF

“WE WILL CONTINUE TO FOCUS ON NICHE MANAGERS IN 2022, IN AREAS SUCH AS SMALL AND MID-CAP ENERGY TRANSITION, FINTECH SPECIALISTS, CHINESE HEALTHCARE, EQUITY LONG/SHORT, AND JAPANESE SMALL/MID-CAP EQUITY LONG/SHORT INVESTMENTS.”

SUZANNE DUGAN

INVESTMENT SPECIALIST, TIFF

MATT HOEHN

CO-HEAD OF CUSTOMISED ASSET ALLOCATION, TIFF

While the hedge fund industry not strong returns in the decade after the financial crisis, and had fallen out of favour for some time, it performed quite well over the course of 2020 and 2021. This improved performance, combined with the recognition that the state of the economy and markets may be conducive to active management, has increased flows into hedge funds.

Due to the reasons above, we have seen priorities shift with regards to hedge funds. We have seen a similar dynamic at the industry level.

TIFF focuses on managers who invest in niche and inefficiently priced sectors, geographies and/or asset classes. The managers are often narrow in scope with deep expertise in their investment vertical and have a sustainable competitive advantage – many are capacity constrained. Lastly, we look for managers who have demonstrated their ability to preserve capital in market drawdowns and have shown asymmetric returns.

We will continue to focus on niche managers in 2022, in areas such as small and mid-cap energy transition, fintech specialists, Chinese healthcare, equity long/short, and Japanese small/mid-cap equity long/short investments.

Our most recent hedge fund investments have been with managers focusing on the global carbon markets and, in particular, managers with exposure to mandatory physical California Credit Allowances.

Our hedge fund programme emphasises strategies that are narrow in scope and deep in expertise, which leads us to invest in specialist managers over generalists.

The majority of our new investments are emerging managers. Some of our longer-term partnerships begin as emerging managers, but transition to being more established.

We continue to believe that US hedge funds who are lagging longonly managers and European hedge funds in ESG, will attempt to include ESG into their investment processes.

TIFF conducts an annual DEI/ESG survey with its hedge fund managers. We launched the TIFF Sustainable Fund in June 2020, which is a comprehensive strategy, including 65 per cent equity long only managers, 20 per cent hedge fund managers, and 15 per cent fixed income. Managers selected for this strategy have either a thematic focus or have already implicitly or explicitly incorporated ESG into the investment process. According to Chris Matteini, Head of Investment Research, Sustainability and Equity-orientated assets, it is TIFF’s belief that US hedge funds are slowly catching up to European hedge funds and the global long-only community when it comes to incorporating ESG into their investment process. TIFF’s recent research on the global carbon markets is one example of US hedge fund managers investing in a carbon-reducing asset class.