Federated Investors, Inc. (NYSE: FII), one of the largest investment managers in the United States, today announced that it has completed its acquisition of a 60 percent interest in Hermes Fund Managers Limited (Hermes), which operates as Hermes Investment Management, a pioneer of integrated ESG investing, from BT Pension Scheme (BTPS).
Hermes manages $47.2 billion (£33.6 billion) across 16 differentiated strategies in high-active share equities, credit and private markets, including real estate, infrastructure, private debt and private equity, serving more than 550 clients through wholesale and institutional markets. Hermes also represents $464.6 billion (£330.5 billion) through its Hermes Equity Ownership Services (EOS) division. (All asset information is reported as of March 31, 2018 and converted using March 31, 2018 exchange rates.)
Hermes’ headquarters—including investment and stewardship teams—remain in London. BTPS has retained a 29.5 percent interest in Hermes, and a 10.5 percent interest in Hermes was placed into an employee benefit trust by BTPS for the benefit of certain members of Hermes’ management and other employees.
“We are excited to join forces with the outstanding people at Hermes. Our work together since we announced the deal has reinforced our mutual commitment to shared values in meeting client needs,” said J. Christopher Donahue, president and chief executive officer of Federated. “As environmental, social and governance considerations play a growing role in investment portfolios, we look forward to bringing Hermes’ well-performing ESG integrated investment strategies to U.S. investors―through institutional separate accounts, mutual funds and ESG-related consultancy services.”
Saker Nusseibeh, chief executive of Hermes Investment Management, said, “Today, Hermes joins with Federated to form a truly global asset manager―dedicated to active management―with mutually beneficial distribution capabilities that leverage both Federated’s extensive network of financial intermediaries in the U.S. and Hermes’ fast-growing client base in the U.K, continental Europe and Asia.”
Gordon J. Ceresino, president and chief executive officer of Federated Investors (UK) LLP, said, “Having known Hermes’ management for more than five years, I have witnessed their outstanding growth and positioning in the marketplace, and I look forward to Hermes being a key pillar of Federated’s global expansion.”
The cost of the acquisition was £246.0 million, as previously announced. An additional £13.9 million primarily for Federated’s 60 percent share of Hermes’ estimated excess regulatory capital was paid, for a total purchase price of £259.9 million ($341.5 million using June 27, 2018 exchange rates).
In the period from the April 13, 2018 announcement of the acquisition through June 27, 2018, the British pound sterling value as measured in U.S. dollars declined by 8 percent. As a result, the cost of the acquisition is 8 percent lower in U.S. dollars than it would have been had currency values been unchanged and Federated recorded a $29.0 million non-operating expense in the quarter ended June 30, 2018 to effectively close the foreign currency derivative for the transaction, as detailed in Federated’s 8-K filing dated July 2, 2018.