US fund giant Federated seals £400m Hermes takeover

A US-based fund manager is on the brink of sealing a roughly-£400m takeover of Hermes Investment Management, the blue-chip institutional shareholder owned by BT's pension scheme.

Sky News understands that Federated Investors, which manages close to $400bn on behalf of clients, is "within days" of announcing the purchase of a controlling stake in Hermes.

If completed, the deal will be the latest in a string of transactions that have begun to reshape the UK's asset management sector.

Hermes, which occupies a prominent role in the industry as an adviser to clients on corporate governance and stewardship issues, was established by BT nearly 25 years ago to manage its retirement funds.

The City-based investor is responsible for £33bn in assets under direct management and a further £336bn under advice.

The Australian fund manager Challenger, US-based Old Mutual Asset Management and Eaton Vance (NYSE: EV - news) also expressed an interest in buying Hermes, although Federated has been in exclusive talks for several weeks, according to a report by Reuters earlier this month.

Saker Nusseibeh, the chief executive of Hermes Fund Managers, has played a leading role in the discussions.

Last year, Henderson Global Investors and US rival Janus (Shenzhen: 300083.SZ - news) merged to form Janus Henderson, while Aberdeen Standard Investments was created from an £11bn tie-up between Aberdeen Asset Management (Frankfurt: 899502 - news) and Standard Life (LSE: SL.L - news) .

Richard Buxton, one of the City's leading fund managers, has struck a deal to buy out part of Old Mutual Global Investors in another high-profile deal.

The flurry of merger activity comes amid pressure on the active management side of the industry, with investors increasingly shifting their capital to passive funds which charge lower fees.

The BT pension scheme remains a client of Hermes, although the telecoms group's pension fund withdrew an £8.4bn government-bond mandate from the asset manager in 2015 in an attempt to cut costs.

In recent years, Hermes has diversified into infrastructure investments, snapping up a stake in Eurostar when it was sold by the Government in 2015.

According to its latest annual report, Hermes made an underlying pre-tax profit of £15.5m on turnover of £104m.

A full or partial sale has been expected to value Hermes at a multiple of several times its annual turnover, with £400m cited by a source close to BT as a realistic valuation.

Fenchurch Advisory Partners is acting for the Hermes management team, while the BT pension scheme is being advised by PricewaterhouseCoopers.

Hermes declined to comment, while Federated could not be reached.