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BT pension fund injects £10m into Hermes to shore up underfunded pension scheme

ESG/stewardship-focused firm gets support from pension fund owner

The £46.1bn (€54.3bn) BT Pension Scheme (BTPS) has injected £10m into Hermes Fund Managers, the ESG-focused asset fund manager it owns, to shore up its underfunded pension scheme.

Hermes Group Pension Scheme is a closed defined benefit scheme with assets of £180.3m, but BTPS has had to step in amid changes in discount rate assumptions which saw it fall into a deficit of £10.4m. The BT scheme is itself £7bn underfunded and has had huge cash injections from its telecom giant sponsor.

“During the second half of 2016, our owners, BTPS, injected £10m ordinary share capital into the company to offset the negative actuarial movement in HGPS,” Hermes says in its annual accounts, filed this month. “This reaffirmed the clear commitment from our owners to support Hermes.”

A spokesperson told RI that BTPS is a sponsoring employer of the Hermes scheme and is therefore “obliged to support its funding needs”.

Hermes’ Chief Executive Saker Nusseibeh – who has highlighted the issue of the “quantum” of pay in evidence to Parliament – had total pay of just over £2m in 2016, according to the report.

Hermes said it was the second year that he was paid in line with CEO peers on a yearly basis, “having been paid previously on a lower package until proof of delivery of turnaround” of the firm.Hermes says his pay is just above bottom quartile (£1.82m) “despite first quartile performance and an outstanding turnaround”. Reference median pay, Hermes says, for similar peers is £2.87m and upper quartile is £3.9m.

This week there were reports that Jupiter Asset Management has withdrawn plans to raise the pay of CEO Maarten Slendebroek by 50% after a backlash from unnamed major shareholders. It was reported that two of its top ten investors felt the hike was unacceptable given the UK’s focus on reining in executive pay. Jupiter will put the new plans to its AGM on May 17.

The Hermes annual accounts also reveal it intends to add a European version of its new direct lending strategy in 2017. The strategy will provide access to the stable, low-correlated returns offered by predominantly senior-secured loans to small and medium enterprises.

Assets under management grew to £28.5bn from £23bn in 2015, while assets under stewardship (Hermes Equity Ownership Services) surged to £261.3bn from £154.7bn. The number of companies engaged grew to 562 from 466.

In 2011 the BTPS agreed a growth plan for Hermes “to create a new model for the industry” by considering the wider impact of decisions, not just financial returns. Now almost 60% of Hermes’ revenues come from third parties.