Hermes will expand its shareholder activism approach to Europe, setting up a European Focus Fund, which is expected to be launched some time next year.
The new fund will be the European version of Hermes’ UK Focus Fund, launched in 1998 in joint venture with US firm Lens Investment Management, with the aim of assisting in the improvement of shareholder returns on companies with hidden underlying value.
Hermes expects the European Focus Fund to be a catalyst for change across the continent.
“We feel this is the right time for this to happen because there have been changes, both cultural and legal, in most European countries,” says Alastair Ross Goobey, chief executive of Hermes Pensions Management in London, which is owned by the BT pension scheme. “If we had tried this five years ago it wouldn’t have worked because neither the law nor the practice supported we are trying to do now,” he says. “Now we are seeing changes in Europe, particularly in Germany and up to certain extent in France, that shows that if companies in Europe want to compete in the international capital markets they are going to have to behave in a more open and shareholder-friendly way than they have done in the past.”
Initially the firm will concentrate in France, Germany and Benelux, because it believes those are the countries where there are the greatest opportunities to do what Hermes has been doing in the UK, and will use local partners. “One of our most important considerations will be to take into account each country’s different regulation and cultural needs,” he says. “We are very sensitive to that and that’s why we’ll be using local partners to do some of the governance side .”
Eventually Hermes hopes to focus on other European countries. “We’ll be looking at companies all around Europe, in and outside Euroland,” he says. Hermes will identify companies to make sure there is value in them and that they are going through changes and improvements in terms of corporate governance.
Hermes has already started the recruitment process and initially will use BT pension scheme funds, before setting up a formal fund with external subscriptions some time next year.
“We are already big investors in Europe and we know the market very well, and we also being very active in the pure corporate governance area,” he says. “The approach you make in this sort of fund is different from the traditional one, because you have to look more at the business rather than simply at the numbers.”
In terms of corporate governance standards, he says these remain linked to different cultures. “There is undoubtedly a drive towards internationalisation regarding corporate governance, but it think it’s really up to shareholders to establishes their own rules. The only regulation we need is to make sure that shareholders have all their rights and I think that in most European countries these rights are reasonably regulated.”