EUROPE/US – Calpers, eyeing a “tremendous opportunity”, has approved a 100 million dollar investment in a Hermes corporate governance fund which targets underperforming companies.
The 132 billion dollar Californian Public Employees’ Retirement System pension fund says the increased unwinding of cross-shareholdings in continental Europe has created “tremendous opportunity for corporate governance funds”.
It has approved a 100 million dollar investment in the Hermes European Focus Fund, a corporate governance fund which targets underperforming companies in continental Europe.
The fund acquires large stakes in small number of undervalued publicly traded companies in continental Europe, using its influence as an active investor to affect financial and operational restructuring to increase value for all shareowners.
“This fund complements our philosophy that good corporate governance practices can promote positive change and increase shareowner value,” says Willliam Crist, president of the Calpers board of administration.
“We have learned that active corporate governance strategies helps reduce risk while adding value to our investment portfolio,” Crist adds.
Michael Flaherman, chairman of Calpers’ investment committee says: “We believe the timing is right for this fund. Changes in shareowner rights and an increased unwinding of cross-shareholding in Continental Europe have created tremendous opportunity for governance funds.”
Hermes expects to have a concentrated portfolio of five to 20 companies, with a goal of outperforming the FTSE World Series Europe Index by five percent annually over three years. Its strategy is to add value by investing in European companies that have a significant gap between the current trading price of the company versus its actual value if managed properly. Hermes seeks to narrow this value gap by improving the company’s corporate governance, capital structure and senior management.
Hermes European Focus Fund has the backing of 10 institutional investors and funds under management of approximately 350 million euros, with a target size of two billion euros.
Calpers also has a 200 million dollar investment in the Hermes UK Focus Fund, a corporate governance fund targeting undervalued public companies in the UK.