In the latest in our series, Portfolio Adviser hears from Federated Hermes head of UK distribution Clive Selman (pictured right)
Which asset classes and strategies do you anticipate intermediary clients focusing on in 2022?
No doubt the number of ‘Article 9’ funds coming to market will continue to grow. We have seen an increased appetite across our wholesale channel of clients for what we label as ‘sustainable’ funds and we have been growing our offering in line with this trend, which will include global, regional and thematic ideas.
As examples, last year we launched the Federated Hermes Global Sustainable Equity Fund and recently converted our existing European Funds to sustainable, with an additional environmental objective, clear exclusions and an enhanced sustainability framework. I would expect themes like climate change, net zero and impact will come ever more into focus too.
Businesses must, however, remember this remains a growth area relative to Article 8 Funds. ESG-integrated products make up most of the market and I expect intermediaries will want to see firms grow fund offerings in places like China, as well as themes that are not just climate-related. Finally, intermediary clients are focusing on expectations for interest rates and what rises could mean for investor portfolios.
Should end-investors – and, by association, asset managers – be thinking beyond equity and bond investments? Towards what?
At present, returns on money market funds are low – though moving up again – and the alternatives space is difficult to get right with the issue of accessibility into private markets for end-investors. It is hard for managers to provide access within current fund structures. Development of these structures is imperative to give investors the right exposure. It might be tempting to look at some of the ‘exciting’ ideas, such as crypto, but I would hazard that for many end-investors this route is fraught with risk.
Given client and regulatory pressure on charges, how is your business delivering value for money to intermediaries and end-clients?
At Federated Hermes, we believe value does not just relate to costs and end-charges – it is also created through quality of client servicing, integration of ESG and stewardship. Integrating properly into the investment proposition is one of the only ways to deliver long-term value in a differentiated way, other than traditional investment terms. Our impact products set a high bar on criteria such as intentionality and additionality. We also put in high barriers to entry, to prevent our products becoming a means of greenwashing. So when our funds and investment processes are scrutinised, our authentic approach is clear.
“Around 95% of our public markets products are already Article 8 or above, so we walk the walk”
How much of your distribution is currently oriented towards ESG issues and sustainable investing? How do you see this evolving?
Since the firm’s origins, our sole purpose has been to provide sustainable wealth creation for our clients. We have three clear pathways for investors to access this. All our products integrate ESG and take these risks into account as part of the investment process, while our sustainable range of products have clear exclusions applied and contain ESG leaders. Finally, we have an impact range, where the products and services of the holding companies have a positive impact on people and the planet.
Engagement is at the heart of our strategy across the firm. EOS, our stewardship and engagement team, advises on $1.7trn (£1.25trn) of assets and works closely with our investment teams to ensure portfolio companies progress on ESG objectives. Our investment strategies are overseen by our Responsibility Office, to guarantee our teams evolve their approach to the highest ESG standards. Around 95% of our public markets products are already Article 8 or above, so we walk the walk.
In what ways do you think the experience of lockdown has permanently affected or changed the asset management sector?
While the full effect of lockdown on the asset management sector is yet to become completely clear, the move to hybrid working is likely to stay. The pandemic has demonstrated it is possible to perform outstanding work for clients remotely. Technological development will continue to support this. As focus on the climate crisis continues to grow, this is likely to lead to a reduction in long distance, work-related travel compared with pre-pandemic levels.
That said, there is still value in meeting colleagues and clients face-to-face and, since last autumn, we have seen enthusiasm for a partial return to the office. Lockdown demonstrated the need to allow flexibility to fully respect employees’ individual requirements and highlighted the need to develop and maintain real-world working relationships. The future will likely see reconciliation of the two.
“We have talked to clients about whether we need face-to-face update meetings with known managers and the almost universal answer has been ‘no’”
How do you plan to balance face-to-face and virtual distribution? Have you identified aspects where one is especially better (or worse) than the other?
Given changes in the working environment over the last 18 months or so, we have talked to clients about whether we need face-to-face update meetings with known managers and the almost universal answer has been a resounding ‘no’. Everyone benefits from cutting out travel time and it is more efficient. We think it will increasingly become an accepted way of doing business.
How did you spend the Christmas break?
Unfortunately, our family Christmas plans were ruined because we all came down with Covid. After we had all recovered and tested negative, however we were luckily able to go to Switzerland for a few days to ring in the New Year. The sense of freedom you get from travel has never felt so real!
What aspects of your own lockdown routine do you expect to continue with as people migrate back to office-working?
I’m keen to continue cycling, as I did during lockdown. I know it was also important to many of my colleagues at Federated Hermes. In September 2020, 11 colleagues joined me for a tiring, though thoroughly enjoyable, 650km charity bike ride from Hadrian’s Wall to the Hamble.
We were blown away by the hundreds of donators who contributed. We raised £43,000 for The Brain Tumour Charity, an organisation close to our corporate heart. This money will fund more than six months of research and development, something we can all be proud of. I am thankful for the overwhelming support and for everyone coming together in what has been a tough year to take the opportunity to remember our loved ones. I am keen to pursue more charitable initiatives.
More generally, what are you expecting from ‘the new normal’?
With a new hybrid way of working, going into the office has become something to look forward to, so the back and forth on ‘WFH’ in recent months has not been too welcome – while, of course, eminently understandable. If I have a day full of calls, I am more likely to do that from home. But if not, I go into the office to spend time with colleagues and clients. It is now more of a social enterprise.