Billed less brashly as a “shareholder engagement fund,” the E300 million ($263 million) Hermes Focus Asset Management Europe fund aims to light a bonfire under malingering chief executives and is in fact derived from the similar Hermes Pensions Management fund in the U.K.
“We are not confrontational,” insists Stephan Howaldt, the 36-year-old former UBS Warburg investment banker who runs the fund. “But we want CEOs to change either their strategy, their capital structure or their corporate governance. Our brief is to invest in good businesses that are undervalued because they have not been directed as they should have been.”
Howaldt buys a bunch of shares as an enticement to CEOs to undergo Hermes’s tough love, and he says the fund first tries to work with existing managers to rectify problems. Implicitly, the fund also brings to bear the clout of two of its most prominent shareholders: the Netherlands, PGGM and the U.K.'s BT Pension Scheme, Europe’s second- and third-largest pension funds, respectively.
Unlike shareholder rights funds, Hermes doesn,t call public attention to a company’s troubles. Indeed, Howaldt refuses to name the eight companies in which the fund has invested so far.
But he warns that if CEOs don,t move aggressively enough to right their ships, Hermes might consider public disclosure. It’s a “weapon of last resort,” says Howaldt, who as a banker helped restructure Germany’s Siemens.
