April 13, 2018 / 9:43 AM / in 13 days

Federated Investors takes majority stake in fund manager Hermes

LONDON/BOSTON (Reuters) - Federated Investors (FII.N) said on Friday it will take a majority stake in British peer Hermes Fund Managers for 246 million pounds ($351 million), giving the U.S. asset manager a foothold in the fast-growing field of investing with an eye on factors such as climate change and gender pay equity.

The deal with the BT Pension Scheme (BTPS), which owns Hermes, will be funded through a combination of cash and a revolving credit facility and is set to close in the second half of 2018, Federated of Pittsburgh said in a statement.

Under the terms of the deal, Federated will take an initial 60 percent stake, leaving BTPS with 29.5 percent and members of the Hermes management team with 10.5 percent. Hermes will remain headquartered in London as a subsidiary of Federated, with no layoffs planned among its current staff of around 400 people, Federated Chief Executive Christopher Donahue said in a telephone interview.

Federated managed $397.6 billion in assets at year-end, concentrated in money market funds. Hermes manages about 33 billion pounds across equity, credit and private strategies and is known for taking stands on a range of environmental, social and governance (ESG) issues.

It also advises institutional investors on how to vote at corporate annual meetings.

    Donahue said Hermes’ capabilities and client relationships in Europe and Asia will broaden Federated’s distribution capabilities. Meanwhile his firm plans to introduce new products for U.S. investors once the deal closes that would be based around Hermes’ expertise.

    Federated might also offer Hermes advisory services to big U.S. clients that hold assets in index strategies. “If you can’t sell the stock, why not work with management to build sustainability or manage returns?,” he said.

    ESG investing lately has proven a bright spot for active managers and spurred a number of deals, including Eaton Vance’s (EV.N) purchase of ESG manager Calvert Investment Management.

    Federated was advised by Citigroup and Barclays while BTPS was represented by PwC and Allen and Overy. Hermes was advised by Fenchurch Advisory.

    Additional reporting by Ben Martin; editing by Jason Neely and Diane Craft

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