Following the purchase of European equities manager Sourcecap International, Hermes Pensions Management, the fund manager for the Â£32 billion ($51.8 billion) BT Pension Scheme, is preparing to market its diverse array of boutique managers to institutions worldwide.
At Hermes, Sourcecap, an active European equities fund, joins a stable of other products “including global equity, real estate, hedge funds, private equity, small companies and the well-known activist funds” which aim to generate “risk-adjusted high alpha” for BT and other prospective institutional clients, Saker Nusseibeh, head of investments at the manager, said.
Hermes will now concentrate on establishing these capabilities and preparing its distribution teams before concentrating on winning business from institutional funds other than BT. It will begin fundraising efforts in the first six months of 2010.
said the crucial quality that Hermes sought in the managers it acquired was their ability to generate sustainable alpha.
“Because BT is investing in them, a lot of the rigour [that Hermes exercised] is what an investor would do. It’s not a decision to hire for a third party, but for our owner.”
But the boutiques also benefited from being owned by a pension fund, because they could implementÃ‚Â long-term investment strategies without being pressured to accumulate assets in order to survive.
“Our owner has a very, very long-term investment horizon. We’re not looking for a quick churn, because I can’t churn my owner. The products we bring to the market are those that we believe will continue to make sustainable alpha.
“In most funds management companies, the truth is that the decisions made are motivated by profitability, not performance.”
Hermes’ distribution teams in the UK, Europe and the US would be supported by portfolio specialists who have a deeper technical knowledge of the funds. The manager had also hired a third-party representative in Middle East and North Africa region, and was stepping up its relationship with Plus Capital, a third-party fundraising firm, in Australia.
Further into the future, Hermes would consider acquiring an emerging market debt manager, and also a frontier markets manager, Nusseibeh said.
He was confident the multi-boutique business would attract external institutional money, and that if it was capable of generating long-term outperformance, the funds would no doubt benefit these new investors, but handsomely reward BT.
“If it’s successful, it generates capital value which is owned by BT. It then has a high internal rate of return as well as investment return, benefitting the members of BT.”
Nusseihbeh said individual capacity limits for the boutiques would be enforced to ensure they don’t grow too large and jeopardise their ability to deliver alpha.
“Because we’re generating profitability as well as alpha, we will be hitting marks and closing boutiques when they reach them. We have to do it.”