We are proud of our strong culture of responsibility and we aspire to both maintain and further foster this positive approach in the way we behave as a firm and as individuals. The Federated Hermes Pledge expresses the commitment of our staff to always put the interests of our clients and their beneficiaries first and in so doing manage conflicts of interest fairly between all affected parties.
In all of our activities, we seek to promote the long-term value and success of the companies in which our clients invest.
Our Conflicts of Interest policy is available online - https://www.hermes-investment.com/ukw/wp-content/uploads/2019/10/0007317_conflicts_of_interest_v2.pdf
Our stewardship conflicts of interest policy is available online: https://www.hermes-investment.com/ukw/wp-content/uploads/2019/04/stewardship_conflicts_of_interest_policy.pdf
Stewardship (see www.hermes-investment.com/stewardship/)
Federated Hermes provides fund management and stewardship services to institutional investors worldwide, including a number of pension funds sponsored by corporations, governments and other organisations, as well as fund managers. These services include voting and engagement with companies in which our clients are equity shareholders and/or bond investors. We are cognisant that a number of conflicts could arise, such as engaging or voting the shares of a company that is the sponsor of one of our pension fund clients or is a company within the same group as one of them. We therefore have a Stewardship Conflicts of Interest Policy
Across Federated Hermes we take all reasonable steps to identify conflicts of interest between: (1) Federated Hermes, including its managers, employees and appointed representatives or any person with a relevant direct or indirect link to them, Federated Hermes clients as a body; or (2) any one client of Federated Hermes and the client body.
In our voting and engagements with companies that are the sponsors of, or in the same group as, our clients, we are careful to protect and pursue the interests of all of our clients by seeking to enhance or protect the long-term value of the companies concerned. In the first instance, we make clear to all pension fund clients with corporate sponsors that we will treat their sponsoring companies in the same way as any other company. In addition, we ensure that in such situations the relevant Federated Hermes client relationship director or manager is not leading the engagement or making the voting recommendation to clients. This same approach would hold true with respect to any engagement with a company with whom Federated Hermes or our clients, have a strong commercial relationship.
While we welcome client input and suggestions for engagement, all of our engagements are selected and pursued based on an objective assessment of the severity of the problems faced by or opportunities available to the companies engaged; the likely effect on them of public policy and regulation and the likelihood of success in achieving value enhancing or mitigating value-destroying change.
We have well established publicly disclosed voting principles and based upon these and the judgements reached through engagement with individual companies we provide voting recommendations to our stewardship voting clients. There may be occasions where one of our clients seeks to influence the voting advice we give to other institutional clients. In such circumstances there would be director level involvement and an objective judgement reached based upon what we believe to be in the best long-term interest of our clients as a body. All clients retain full discretion over their final voting decision.
In those limited circumstances where a conflict over our approach to voting (aside from that directed by client specific policies) or engagement arises which is not able to be resolved in the manner set out above – the matter will be escalated to an ‘escalation group’ which reports to an independent sub-committee of the Board.
More detail is available in our Stewardship Conflicts of Interest policy: https://www.hermes-investment.com/ukw/wp-content/uploads/2019/04/stewardship_conflicts_of_interest_policy.pdf
Our Real Estate business has formal procedures to deal with conflicts of interest. One potential area of conflict is in the allocation of real estate investments between client portfolios. However, it is important to note that each portfolio has its own geographical and structural bias, and specific investment objectives in terms of risk, income profiles, hold periods and target lot size. An additional element that compounds this separation is the difference in the timing of liquidity between the various client portfolios - not all are in the market for new products at any given time, so in practice this is rarely an issue.
An additional feature of the investment process that further reduces the risk of conflicts in investment allocations is that investments are allocated on a 'first past the post' basis, whereby the investment team that first receives the introduction has the first opportunity to acquire the investment; if the opportunity is not a fit within the particular fund then it is made available for other clients managed by Federated Hermes. In most cases it will be clear where a particular investment should be placed between client funds, but where there is any doubt the allocation decision will be approved by the CEO of our Real Estate business and the rationale for the allocation set out in the papers presented to the Investment Executive for formal approval.
Any other type of potential conflict of interest would be reported to, and dealt with by, our Real Estate Board, or the Appointments Committee for HPUT-related matters.