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IPE special report May 2018

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AP1 awards $400m global high-yield mandate to Hermes

Sweden’s first national pensions buffer fund AP1 has awarded a $400m (€338m) high yield bond mandate to Hermes Investment Management.

AP1, which manages SEK323bn (€33.9bn) of assets for the state pension system, said it was adding the global high-yield bond investments to its portfolio to increase geographical diversification of the asset type.

The pension fund put out a tender last December to find investment managers to run three high-yield bond strategies – global high yield, US high yield and European high yield.

Majdi Chammas, head of external management at AP1, told IPE that Hermes was the second global high-yield manager it had picked for these mandates, after taking on TOBAM for the asset class in April.

AP1 was now working on legal documents with two other managers that could not yet be named, Chammas said.

Chammas and Tina Rönnholm, portfolio manager responsible for external high-yield investments at AP1, said: “We share the same belief [as Hermes Investment Management] around our duty of delivering strong returns to our stakeholders, including considering the impact on society as a whole.”

They said the Hermes team was very advanced in the way it integrated environmental, social and governance issues in its core investment process.

“Their innovative approach of pricing ESG risks in terms of spread in their fundamental credit analysis is leading in the industry,” Chammas and Rönnholm said.

Fraser Lundie and Mitch Reznick, co-heads of credit at Hermes Investment Management, described AP1 as innovative and forward-thinking.

“Clearly they, like us, believe that creditors have as much interest as shareholders in seeing companies’ ESG practices improve and that active engagement can facilitate those improvements,” the two men said.

The investment manager – which is wholly owned by the BT Pension Scheme – said its credit team put a high priority on combining investing with engagement to improve outcomes for investors, the company and its employees, all stakeholders and the environment.

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