April 13, 2018 / 9:34 AM / 12 days ago

Federated Investors takes majority stake in fund manager Hermes

* To take initial 60 pct stake for 246 mln stg

* Deal to close in second half of 2018

By Simon Jessop and Ross Kerber

LONDON/BOSTON, April 13 (Reuters) - Federated Investors has agreed to take a majority stake in British peer Hermes Fund Managers for 246 million pounds ($351 million), the U.S. asset manager said on Friday.

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, it 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.

After completion, Pittsburgh-based Federated - which manages $397.6 billion in assets and is best known for its money market funds - has the option to buy, and BTPS the option to sell, additional shares in Hermes over the next three to six years.

Hermes manages 33 billion pounds across a range of equity, credit and private market strategies, with a focus on the UK and Europe. It is known for taking stands on a range of environmental, social and governance (ESG) issues.

It also advises pension schemes and other institutional investors on how to vote at corporate annual meetings and engages with companies through Hermes Equity Ownership Services (EOS), which advises on 336.1 billion pounds in assets.

The deal “brings... a growing global client base, a history of strong performance and one of the world’s leading active ESG investment and engagement businesses,” said Christopher Donahue, chief executive officer of Federated Investors.

“Hermes’ capabilities and client relationships in the UK, the rest of Europe and the Asia-Pacific region significantly broaden Federated’s distribution capabilities.”

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

Federated’s need to diversify has become more acute in recent years as low interest rates have weighed on profits in its core money market funds. Donahue has emphasised other areas including stock and bond funds and separately managed accounts.

ESG investing has begun to attract more interest in the United States, providing a bright spot for active managers as clients pay more attention to matters such as climate change and gender pay equality.

Demand for ESG investment has spurred a number of deals, including Eaton Vance’s purchase of ESG manager Calvert Investment Management, and prompted large fund managers including BlackRock and Vanguard to hire more staff for their corporate governance teams.

$1 = 0.7004 pounds Additional reporting by Ben Martin; editing by Jason Neely

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