US fund giant Federated Investors has taken a majority stake in Hermes Investment Management, paying its parent BT Pension Scheme (BTPS) £246m for the 60% share.
BTPS is to retain 30% of Hermes, with the opportunity to sell that residual holding to Federated after three years. Hermes' management team will hold the remaining 10%.
Hermes IM, widely known as an adviser to clients on corporate governance and stewardship issues, was established by BT nearly 25 years ago to manage its retirement funds and is responsible for £33bn in AUM and £336bn under advice.
Meanwhile, Federated manages close to $400bn for clients and is thought to have been in exclusive talks with Hermes for several weeks.
Hermes has around 400 staff and no jobs are expected to be at risk.
Upon completition of the transaction, Hermes will retain its own board, chaired by an independent non-executive chairman, comprising representatives from Federated, BTPS and Hermes' executive leadership as well as two further independent non-executive directors.
J. Christopher Donahue, president and chief executive of Federated Investors, said: "The agreement with BTPS brings to Federated great people, a growing global client base, a history of strong performance and one of the world's leading active ESG investment and engagement businesses.
"This is a growth opportunity for both Federated and Hermes with Hermes' range of investment strategies serving as effective complements to Federated's existing stratgies in equity, fixed income and cash management."
The latest development comes after earlier speculation late last year that Federated, along with Australian fund manager Challenger, US-based Old Mutual Asset Management and Eaton Vance had all expressed an interest in buying Hermes.
Saker Nusseibeh, chief executive of Hermes, has played a leading role in the discussions, according to reports.
He said: "Through this opportunity, the same Hermes investment and stewardship teams will remain dedictated to our investment philosophies in London while our products and services gain greater exposure through the network of 8,500 financial intermediaries and institutions that already do business with Federated."
Speaking to Investment Week, he added: "We have grown Hermes from a loss-making business eight years ago to a profitable one with a strong distribution footprint in Europe and that has been on the back of the core idea of stewardship and high alpha.
"It was time to think of the next phase as BTPS matures and we were looking for the perfect match to help us grow in other regions. It is not just about financials; Federated shares the same culture and values as us. We have been talking since 2012 so know the business well."
President and CEO of Federated Investors (UK), Gordon Ceresino, added: "I have had the luxury of watching Saker grow the business since 2012 and the company checks all the boxes for us. We were looking for a business with products to complement ours rather than compete and a world leader in ESG.
"Hermes has done a tremendous job and as the ESG movement starts to take place in the US, we will be in the best position as momentum grows."
Commenting on the expected timeline going forward, Nusseibeh added: "The deal has been signed so now it is up to regulatory approval. We expect that to take around three to four months."
If completed, the deal will be the latest in a bout of M&A activity within the UK asset management sector.
Last year, Henderson Global Investors and US bond specialist Janus merged to create Janus Henderson, while Scottish fund houses Aberdeen Asset Management and Standard Life Investments joined to form Aberdeen Standard Investments.
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