Hermes duo quit after dispute over taking stake in fund group

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The Independent Online

Hermes, the UK activist investor which is owned by and manages the BT pension fund, confirmed yesterday that two senior directors had resigned after being denied their request to take an equity stake in the company.

Hermes, the UK activist investor which is owned by and manages the BT pension fund, confirmed yesterday that two senior directors had resigned after being denied their request to take an equity stake in the company.

Peter Butler and Steve Brown, who manage the group's focus funds and last year received total remuneration of £2.4m and £2.3m respectively, had hoped to take a share in the company as part of their incentive package going forward.

While Hermes remained tight-lipped on anything but the broad nature of the dispute, it is believed the board - led by chief executive Tony Watson - rejected the pair's plea, arguing that it could threaten the company's independence.

Mr Butler and Mr Brown's focus funds are believed to have performed strongly over the past few years, significantly outperforming their benchmarks. Hermes said specific performance figures were unavailable, but over the six-year period since the funds were launched, they are believed to have exceeded their target of outperforming their benchmarks by 5 per cent a year.

While Mr Butler and Mr Brown's performance has been impressive, Hermes said the funds represented just 2 per cent of the group's overall assets under management. The bulk of Hermes' assets comprise BT and the Post Office's pension funds, which are passively managed, index tracking funds. The focus funds are aggressive, actively managed portfolios, which hold a small number of stocks, and are therefore prone either to very strong outperformance or greater underperformance.

Mr Butler and Mr Brown have agreed to serve out their three-month notice periods before they leave. Both were unavailable for comment ahead of the finalisation of details of their departure. Hermes said it was unable to comment until talks between the pair and their lawyers were completed. It is believed they may consider setting up their own investment management boutique.

The departure of Mr Brown and Mr Butler may cost Hermes hundreds of millions of pounds' worth of assets if the managers' investors choose to follow them to another boutique. Hermes has assets under management of about £44bn, of which the focus funds account for almost £900m.

Aside from the management of BT and the Post Office's pension funds, Hermes is best known for its work as an activist investor, aiming to increase standards of corporate governance across the City.

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