UK fund house Hermes is seeking to build an emerging-markets debt team in Asia in a drive to broaden its presence in, and exposure to, the region, with Hong Kong and Singapore as potential locations.
Separately, AsianInvestor understands the £29.3 billion ($43.7 billion) principal money manager for parent the BT Pension Scheme – the UK’s largest final-salary plan – is set to announce today that it has acquired the $100 million Caliburn Greater China Fund.
Hermes sees this as a key step in providing hedge fund solutions that access the fast-growing market. It will rebrand the thematic multi-manager hedge fund the Hermes BPK Greater China fund.
On its search for an EM debt team, the firm is also open to acquiring a specialist business to gain expertise, provided the synergy is right.
Hermes runs a 13-company boutique structure, some of which came by acquisition and others by rollout after it transformed from an internal manager into an external one in 2007 and began to target third-party assets.
Among its firms are Hermes Credit, a sub-£1 billion global credit strategy; and Hermes Emerging Markets, a long-only equity strategy that aims to exceed the benchmark on a three-year rolling basis.
But it has no EM debt portfolio. It holds 37.4% of AUM in fixed income, 14% in equities and 40.5% in alternatives, including commodities, funds of hedge funds, real estate, private equity and infrastructure.
Saker Nusseibeh, who joined Hermes from Fortis Investments in June 2009 as CIO and became CEO in May this year, says the firm has been looking to add EM debt talent for over two years, without success.
“The problem is not finding the talent, but finding talent that understands that what you build has to be built for at least a five- to 10-year horizon,” he tells AsianInvestor from the firm’s London headquarters.
Hermes has interviewed talented individuals, says Nusseibeh, but it is a matter of finding the right cultural fit. “We are beginning to look in Asia,” he adds, conceding there is a shortage of experienced talent in the region.
“[EM debt] is a gap we have and one people want to buy. Interestingly, if [institutional investors] really start to buy Chinese and emerging-market debt, that will change the market place. But that is yet to come.”
Nusseibeh notes that UK pension funds are seeking income, although many have, in fact, been de-risking – a strategy he disagrees with. Reported estimates claim an average 2.2% allocation to EM debt among pension funds in the US, UK and Europe.
But he adds: “What is clear is that the growth in investment pools is in Asia, not [in the UK]. So in some ways there is a double imperative.
"We want to invest in Asia because it has economic growth, but we also want to access Asia because that is where the future pool of investment is. So we are looking at all parts to get there.”
Hermes already has an office in Singapore, where it houses a private-equity team and now a fund-of-hedge-funds unit that invests in Asia, primarily China. It also has a business development team in Australia.
“We thought about [establishing a presence in] Hong Kong, and maybe that is still on the cards,” Nusseibeh says.
If Hermes gains an EM debt capability in Asia, he says he will look to sell that to the UK institutional market as a first step.
“I think [EM debt] is more attractive than [UK investors] realise,” he adds. “What I would really like to get to is managing money for developing-market investors. To do that they have to trust me and I have to become a local.”
He also reveals that a QFII licence is something Hermes is discussing, although it has not applied yet and he declines to offer a timeframe.
Last year Hermes suffered net withdrawals of £2 billion, with AUM falling 5% to £28.2 billion in the 12 months to the end of 2011, according to accounts it filed last month.
While its revenues rose 4% in 2011 to £102 million, its profitability was hit by the £10.4 million it paid last December to buy out Henderson Global Investors’ 35% stake in their private-equity joint venture, Hermes GPE.
However, as at the end of March, Hermes’ AUM had risen to £29.3 billion.
A spokeswoman for the firm adds that it saw over £500 million in inflows from external clients into a number of strategies last year, including real estate, commodities and European equities.