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Our beginnings

Our DNA, our culture and our history is rooted in responsibility

It is important that St Michael* is on the side of the angels.

We have engaged with companies from day one: in 1983, our first Chief Executive Ralph Quartano made his now-famous intervention, admonishing the Marks & Spencer Board for the special loans they made available to directors.

His message was clear: we were committed to serving the needs of our clients – who were effectively 400,000 beneficiaries, part of whose money we managed – and we understood that the investment decisions we made on their behalf helped to determine the shape of the future society in which they would live.

* St Michael was a brand that was owned and used by Marks & Spencer from 1927 until 2000.

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Ralph Quartano, Hermes’ first chief executive

The future’s in the past

We are an asset manager with a difference. We were set up to manage the pension funds of BT and the Post Office in September 1983 against a backdrop of financial deregulation, the privatisation of state-owned companies and trade-union reform.

Our foundations, however, were laid six years earlier when the UK government set up the Carter Committee to review the organisation of the Post Office. It recommended that the telecommunications division should be separated from the Post Office. And so, in 1981, a new statutory corporation, British Telecommunications (BT), was created.

Possfund had managed the pension fund (Post Office Staff Superannuation Scheme, or POSSS, as it is known) of the entire Post Office group since 1969. Now divided, the Post Office and BT were both responsible for looking after their pensionable employees.

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The Monument to the Great Fire of London

BT established its own Trustee body, British Telecommunications Staff Superannuation Scheme (BTSSS). In 1983, a Special Order was put before Parliament, permitting a split of the assets in POSSS on the basis of an actuarial assessment. They were divided as follows: just under 58% to BT and the remainder to the Post Office. Lengthy negotiations about managing the two pension schemes ensued between the companies, the government, the trade unions and Possfund. In September 1983, all parties agreed to a complete separation of assets between the two schemes and the existing Possfund investment team would remain intact, following the behests of each scheme in regard to its own assets. And so, we were established as PosTel Investment Management.

As part of the new arrangement, the board was drawn equally from its two shareholders, POSSS and BTSSS, alongside Chairman Leonard Hall. Meanwhile, Ralph Quartano, the head of Possfund, would take the helm as chief executive.

We were based in Equitable House on 48 King William Street, London – a stone’s through from the Monument to the Great Fire of 1666. Indeed, the monument was described by Quartano as “a most useful adjunct in meetings”.

“A quick trip up the 311 steps always instilled respect,” he said.

Three years later, the City of London changed forever. In a single swoop on 27 October 1986, it was deregulated by Prime Minister Margaret Thatcher. The Big Bang, as it came to be known, revolutionised the City – and the course of global finance – by abolishing fixed commission charges, ending the separation of dealers and advisors and opening the market to international banks by allowing foreign ownership. It also ushered a change from an open-outcry to electronic, screen-based trading system.

By now, the market value of assets under management of POSSS and BTSSS was £4.8bn and £7.1bn, making us one of the largest asset managers in the UK.

Quartano retired as chief executive in August 1987.

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The Big Bang revolutionised the City of London

In August 1988, we moved to Standon House, located on 21 Mansell Street, London as our business grew. By 1990, we were acting as the asset manager of POSSS, the Post Office Pension Scheme (POPS), BTSSS, and the British Telecommunications New Pension Scheme (BTNPS).

The BT Pension Scheme (BTPS) was formed on 1 January 1993 – the result of a merger between the BTSSS and BTNPS.

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L-R: Tony Watson (CEO 2001-2006) and Alastair Ross Goobey (CEO 1993-2001)

Alastair Ross Goobey, a pioneering advocate of better corporate governance, took the helm as chief executive in the same year. Ross Goobey pressed for shorter CEO contracts among listed companies: he wrote to the chairmen of the 100 biggest British companies urging that they scrap long-term rolling contracts for directors. Companies began to listen, and his ideas were later adopted and developed by the Hampel committee on corporate governance in 1998 and the subsequent Higgs report on directors’ roles.

In 1995, the trustees of the BT Pension Scheme purchased the Post Office scheme’s holding in PosTel, thereby becoming the sole shareholder. We changed our name to Hermes, the Greek messenger of the gods. To reflect our new ownership structure by the BT Pension Scheme, a resolution was approved and passed at an emergency general meeting on 27 February 1995:

That, subject to the BT Scheme acquiring all of the share capital of the Company, the name of the company to be changed to Hermes Pension Management Limited on 31 March 1995 or such later date that the acquisition of the said share capital takes place.

A year later we decided to offer our investment services to third-party clients.

The establishment of Hermes Focus Asset Management under Ross Goobey’s leadership in 1998 paved the way for institutional investors to add shareholder value by challenging boards and pushing for corporate-governance reform. The Focus funds, as they became known, led high-profile campaigns for corporate change at some of Europe’s biggest companies.

At this time, the creation of the European Single Currency was causing widespread unease in the City of London. There were fears that the UK’s decision to not join the single currency would threaten the City’s position as a global financial hub. Instead, the City prospered.

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In 1995, PosTel changed its name to Hermes

At the turn of the millennium, we moved to Lloyds Chambers on 1 Portsoken Street, London, which would remain our home for the next 18 years – through the bursting of the dotcom bubble, the global financial crisis, eurozone debt crisis and indeed, our own period of transformative growth.

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