India-bound: Hedge fund operator plans $1 billion ESG fund

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Published: February 18, 2019 8:15:16 AM

The timing couldn’t be better for Avendus, a Mumbai-based financial company backed by KKR & Co., as corporate India struggles with a host of governance issues ranging from troubled relationships between companies and their founding firms to poor disclosures on debt.

Hedge fund operator plans billion ESG fund

Avendus Capital Ltd. has started accepting money for one of India’s first funds to base investment decisions on environment, social and governance parameters as investor concerns about governance at Indian companies surge.

“Traditionally, university endowments and pension funds tend to participate in ESG. But we are now seeing a lot of appetite also from millennial, high net-worth investors and family offices,” Abhay Laijawala, managing director at Avendus Capital Public Markets Alternate Strategies LLP, said in an interview at his office in Mumbai. “The compelling newsflow around climate change and work-related issues is driving this shift.”

Avendus expects to raise $1 billion over two years with its ESG fund and sees around 70 percent of that money coming from overseas investors. Laijawala declined to say how much his fund has raised so far. The firm has an exclusive agreement with proxy advisory firm Institutional Investor Advisory Services India Ltd., or IiAS, to assess NSE Nifty 100 Index companies based on ESG scores, and aims to invest in no more than 25.

Global investment based on ESG strategies stood at nearly $23 trillion at the end of 2015, according to the most recent data available from the Global Sustainable Investment Alliance, published in a report sponsored by Bloomberg LP, the parent company of Bloomberg News. While sustainable investment is now well-entrenched in Europe and the U.S., the concept is just getting off the ground in India.

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The timing couldn’t be better for Avendus, a Mumbai-based financial company backed by KKR & Co., as corporate India struggles with a host of governance issues ranging from troubled relationships between companies and their founding firms to poor disclosures on debt.

Last week, India’s central bank reprimanded Yes Bank Ltd. for selectively revealing a “confidential” report by the regulator that led to a 30 percent surge in the lender’s shares Thursday, calling the disclosure a “deliberate attempt” to mislead the public.

“In India, environmental issues are hard to ignore and corporate governance scandals loom large in investors’ minds,” said Dan Lefkovitz, an index strategist at Morningstar Inc. in Chicago. “Awareness is growing that ESG issues are material to financial results.”

India seized control of Infrastructure Leasing & Financial Services Ltd. last year and is inspecting its books for audit lapses after a series of defaults by the conglomerate that roiled market sentiment. So far in 2019, allegations of financial irregularities have rocked the nation’s top drugmaker Sun Pharmaceutical Industries Ltd., Dewan Housing Finance Corp. and Essel Group, owner of India’s biggest television network.

SBI Magnum Equity ESG Fund is currently the only Indian fund that classifies as a portfolio investing in sustainable assets, according to data compiled by Value Research Ltd. Quantum Asset Management Co. last week filed a draft with the capital markets regulator for an ESG fund, the Securities and Exchange Board of India website showed. Other than that, it’s still a pretty wide open field for Avendus, which opened its fund on Feb. 1.

“Just think, as an example, how big a catalyst a factor like air quality will be as Indians increasingly start demanding their right to breathe fresh,” Laijawala said. “This is a big environmental and social issue and we will definitely study its repercussions on businesses and investments.”

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