London firm Hermes has merged its private equity fund of funds business with Gartmore Investment Management to create an independent fund of funds manager called Hermes GPE.
The firm will have combined assets under management of £4.1 billion (€4.5 billion; $6.1 billion), and will pursue two tracks to invest its money. Hermes GPE will look to win mandates from institutions like pensions to manage their private equity programmes, and the firm also will look to buy in-house private equity programmes from asset managers, according to Alan MacKay, chief executive officer of Hermes GPE.
For the first time in the history of private equity, good governance and responsible investing are not just being applauded, but are getting rewarded.
“A lot of in-house teams need to scale up or get out,” MacKay told PEO in an interview. “There’s a dynamic of consolidation which is the consequence of a decade of expansion in private equity.”
Proposed regulations in the US and Europe that would restrict bank holding companies from running direct investment programmes would create opportunities for Hermes GPE, MacKay said.
“The consequence of these rules will be to push private equity toward managers who can credibly say they’re in the business of responsible investment management,” MacKay said. “This will put people who’ve been running quite threadbare operations in the private equity space to get out of the space and hand over the capital to people with more experience, more expertise.
“For the first time in the history of private equity, good governance and responsible investing are not just being applauded but are getting rewarded,” MacKay said.
Investors from both firms are sticking with Hermes GPE, and the “feedback without exceptions has been that
It’s not clear how much dry powder Hermes GPE will have to invest. The firm approaches its LPs each year for commitments, and the combined firm is right now in the process of collecting commitments for the year. “Typically the business has in the order of a few hundred millions of capital”, MacKay said.
For the moment the firm’s basic investment strategy will follow that of Hermes and Gartmore, but the firm will embark on a fundamental review of investment strategy in the next few months, MacKay said. “We will try to make calls around where we think … clients should emphasise their money, putting more in the US, Asia, Europe, or more toward specific sector funds, or different segments like leverage buyouts, growth,” he said.