Hermes puts Focus funds partnership plan on hold

By Raji Menon

LONDON (Reuters) - Hermes, the fund manager owned by the BT Pension Scheme, has put on hold plans to restructure its activist Focus funds following the significant underperformance of its main European fund, the firm said in a letter to clients.

In the note seen by Reuters the fund firm said that as a result of the underperformance of the Hermes European Focus Fund HEFF.L chief executive Stephan Howaldt and managing director Wouter Rosingh would be leaving and will be replaced by John Havranek, head of the pan-European active engagement fund at Henderson HGI.L.

Last year, Hermes chief executive Rupert Clarke said the new partnership structure for the Focus activist funds was aimed at giving managers a majority split of the operating profits and would help in attracting and retaining top-performing investment managers. The funds will remain fully owned subsidiaries of Hermes.

Hermes' Focus funds invest in companies where performance is improved through active shareholder engagement.

"Given the impact of the changed environment on the business since we first announced our plans.... Hermes has agreed with the Focus Fund management, that these plans be put on hold for now," the firm said in its letter.

The fund which has 748 million pounds in assets under management returned -27.2 percent year to Dec 31, 2008.

Hermes said the fund's activist style of investment has been "disproportionately hit" during the market turmoil and a number of stocks have been marked down substantially.

"Share price declines have been further exaggerated as distressed hedge funds have deleveraged and received calls for redemptions, becoming forced sellers," the firm said.