Federated swoops in for £246m Hermes stake

The UK investment manager raised an £845m secondaries fund in 2013 and incorporates the strategy into its growing SMA business.

US-based investment manager Federated Investors has bought a 60 percent stake in Hermes Investment Management worth £246 million ($351.3 million; €284.8 million).

The BT Pension Scheme will retain a 29.5 percent share in the group it first established in 1983, but which has since grown to manage investments for over 500 clients. Senior Hermes management staff will hold a 10.5 percent stake under the new structure.

The deal represents a £410 million valuation for the group and a multiple of 12.8 times Hermes’s 2017 EBITDA. A put/call agreement has been established by Federated and BT, allowing for the respective duo to purchase or sell the remainder of the interest three years after the transaction and every year afterwards through to the sixth anniversary.

J. Christopher Donahue, chief executive of Federated, said the deal would “significantly broaden Federated’s distribution capabilities”, where 96 percent of its $132 billion in assets under management – excluding money market assets – is based in the US, with a 51:49 split between equities and fixed income.

The acquisition of Hermes adds a weighty alternatives division to the portfolio, with 22 percent of Hermes’s $45 billion under management in real estate, 9 percent in infrastructure and 8 percent in private equity.

In September 2013 the firm reached final close on an £845 million global secondaries fund, which counted Finnish Local Government Pensions Institution (KEVA) among its investors.

Hermes manages around $5 billion in private equity assets. Last year Private Equity International reported that Hermes was tilting towards more separately manged accounts through its co-investment programmes due to demand from several LPs.

The impact on Hermes’s fundraising activities is as yet unclear.