Federated Hermes' new brand featured on Bloomberg TV
Chris Donahue and Saker Nusseibeh discuss responsible investing and their visions for Federated Hermes, Inc. with Bloomberg Television.
Published February 3 2020
Vonnie Quinn: Federated Hermes officially debuts today on the New York Stock exchange under the ticker symbol FHI. The new corporate identity comes after Federated Investors took a majority stake in London-based Hermes Fund Managers, back in 2018. The new company now manages more than 550 billion dollars in assets. Joining us now is J. Christopher Donahue, CEO of Federated Hermes and Saker Nusseibeh, CEO of Hermes Fund Managers Limited. So congratulations to both of you gentlemen, and I guess this has been a long time in the works. Chris, explain to us why this is a good deal for all.
Chris Donahue: Well thank you very much Vonnie. It has been a great deal for Federated. We started talking to Saker and his team back in 2012. And so we had almost five and a half to six years of what I call cultural due diligence to find a fit of people, who were consistent with our values, to find mandates and success in investment management, an international footprint and a culture that would match up well. The ESG and responsible investing was a critical ingredient as we saw that as the next step in investing in our future.
Vonnie: Saker, what's it like to see the molding happen? I mean, I presume that still isn't fully done and there will be a lot to do over the next couple of years but essentially now you are on the New York Stock Exchange, therefore you exist.
Saker Nusseibeh: Absolutely, so it's been a fantastic journey and when we also went out looking for someone to acquire the majority we were careful about what sort of person we wanted to buy us. And we want somebody who, sort of, got the fact that we were alpha producers but we did so by integrating ESG and responsibility, which I'd claim if we did not invent, we were certainly one of the very early pioneers, some 30 years ago. And because we had this long period of cultural due diligence and because the values of the firms are exactly the same, expressed differently but exactly the same, I think this is an amazing coming together. The space on a knowledge share, rather, I mean, people in, often in our business talk about sharing books or merging books together or sales teams together. This is much more about, actually, affirming values together and then exchanging ideas and knowledge base. So it is unique in that sense.
Guy Johnson: Mr. Donahue, Guy in London. Is this a response to the problems that active management has been experiencing over the last few years?
Chris: This is a move that goes back beyond that. And the reason it goes back beyond that is because Saker and his team had been on this subject since the early 80's. And we knew this was a growing, growing trend. Now you can't do a survey where you don't find 85% of the younger investors who want to hear about why responsible, sustainable investing for the long term is a key ingredient. It's certainly true in all of our fiduciary heritage and where we find that and the combination of these two is not just a reaction to active or passive. In fact it's very interesting to note that the things we're talking about here in responsible investing infuse all investments, all companies, not just passive or active.
Guy: Saker, how big of, is the opportunity in ESG? Clearly it is an area that is under-researched, under-understood, therefore it is almost perfect for an active manager to try and figure out a way of making money from it. You talk about ESG as an opportunity. Walk me through where that opportunity exists.
Saker: So, hi Guy and good to see you across the Atlantic now, rather than in person. I think you're exactly right. It's a massive opportunity in two ways. The first bit of it is in high active share, different from the benchmark, high alpha. It is the way in which you can add value. And I think the value that we bring to the combined company is our deep knowledge of how ESG integrates means that we can, in fact, add value in finding how to create wealth better over the long term. In other words it's a fundamental factor that is being added and I think that as people look for more value advantage and more informational advantage, that is being recognized as one area that needs to be added to and we can add value that way.
Saker: But there's also another opportunity. With the growth of indexation there's a realization that index funds need also to have some kind of engagement with the companies that they're invested in. We recognize that because we launched an index fund back in 1985, when Vanguard was still a reasonably small company. And we are again, one of the earliest movers in that space and we think we benefit from that and we, in fact, represent, in terms of our EOS business, which is a separate business as our stewardship, just under a trillion dollar of assets. So I think it's a growing business, as a business. But I think the informational advantage that you gain as an active manager is high and that is the opportunity for alpha hunters, as Chris likes to call them.
Vonnie: Chris, 550 billion dollars, that is a heck of a size. I mean, 50 billion dollars on its own was massive. Is there a point at which something is too big? What kind of valuation are you hoping for on this?
Chris: Well, we expect as we march past 500 billion to march on our way to a trillion, no time frame given. And the reason is that we expect that the mandates and the ideas that we have will be well received by the investing public. And don't forget that we have what we call a franchise for all seasons, where there's a large component of money market assets, equity assets, fixed income assets and some of the things we're looking for in the future are some of the things that Saker and his team have been developing over the years, which is alternatives or private markets types opportunities as well. So we have the next stage of our growth already baked into the cake.
Vonnie: And I just want to mention that FHI is actually up 2.3% now. So a nice little balance on your first day of trading.
Chris: Well thank you.
Saker: Thank you so much.
Guy: Yeah. Okay, guys, thanks, yeah. We really appreciate you joining us. J. Christopher Donahue, CEO of Federated Hermes and Saker Nusseibeh, the CEO of Hermes Fund Managers.
Disclosure: ESG stands for environmental, social and governance investing. 20-40048 (2/20) Federated Hermes, Inc.