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Private Markets

Beyond our own transformation, we also focus on helping to drive positive societal transformations. After all, these transformations inform our holistic approach to private markets.

They are driven by megatrends: geopolitics, technological change and digitisation; demographics and urbanisation; the impact of a globalised workforce and migration; as well as environmental stress, resource scarcity and climate change.

Real Estate

At Hermes, we have long recognised that responsible investment practices are changing real-estate market conditions. Regulatory drivers and growing market demand indicate that sustainable portfolio and building characteristics affect real estate investment’s fundamentals: it creates reduced risk of obsolescence and depreciation, enhances tenant retention, reduces void periods and lowers operating costs.

Responsible investment has been at the heart of our real-estate investment strategy for many years, and our focus on generating holistic returns commits us to delivering excellent long-term investment performance and stewardship while being acutely conscious of the impact that our activities have on communities and the environment.

We believe that responsible property investment (RPI) can provide both superior financial returns and a better, more sustainable society. We invest actively and take a long-term approach to understanding the drivers of the changing real-estate landscape and the related shifts in demographics and lifestyle. Our RPI philosophy is based on employing patient capital to go beyond financial outperformance1. Our place-making approach seeks to make buildings part of the community in order to develop meaningful cities, where people want to work and live, and in which they take great civic pride.

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Source: Hermes as at September 2019.

Our impactful approach

By investing for outperformance while aligning our strategy to the needs of society as it changes, rather than managing pure-play impact-investment products, we seek to help deepen the practice of responsible investment. This means using a purposeful framework to focus our real-estate operations on impact themes, and within these targeting activities with measurable environmental, economic and societal impacts. Intentionality, a conscious aim to create positive impacts through investments, and transparency are key elements of this approach.

Meaningful place-making in the UK

Intrinsic to our ability to generate positive impacts within our mandate is the concept of meaningful cities: urban places where people want to work and live, in which they take great civic pride, and which they want to support through social, economic, leisure and community-based activities.

We have acquired a number of large urban-regeneration opportunities across the UK.

Our meaningful place-making developments span nine UK cities

NOMA: embracing Manchester’s heritage, inspiring its future

Innovative, commercial and responsible, NOMA is a 20-acre, £800m scheme in central Manchester and the largest urban development outside south-east England. Previously, NOMA was the site of Shudehill Mill, the 18th century cotton mill that accelerated Manchester’s development as an industrial leader. Its major features include:

  • Five historic buildings, which are undergoing or have been refurbished
  • Angel Gardens, a 460-unit build-to-rent scheme targeting young professionals
  • The Pilcrow Pub, which is anchored to Sadler’s Yard, was built with support from 500 volunteers over an iterative nine-month process

These properties and spaces, the businesses and people they attract, in addition to aligned social and cultural initiatives, are giving NOMA a new identity, deeper sense of community and bringing more people to this part of central Manchester.

Source: Hermes as at December 2018.

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Wellington place: an economic and social hub

The 20-acre site – originally part of Leeds Central railway station, which closed in 1967 – was converted into a green space in 2009. We have worked with developer MEPC to ensure that the interests of people inspire the buildings and open spaces we create.

Some of the key highlights include:

  • 13 businesses on site, employing 3,650 people
  • All of the new buildings achieved an excellent BREEAM rating in both the design and construction stages
  • The development also supports wellbeing in the community, with amenities and activities including free bike hire and bicycle storage, health and fitness clubs, counselling and stress-management workshops

Source: Hermes as at April 2019.

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King’s Cross: an exemplar of impactful place-making

In December 2017, the King’s Cross Central Limited Partnership, of which Hermes is a member, released an extensive study carried out by Regeneris, “The Economic and Social Story of King’s Cross”. It details positive social impacts of the transformative regeneration of the area, providing valuable quantitative data, such as the following highlights:

  • £3bn construction spending involving 300 local suppliers, supporting 1,300 jobs in London and 500 in the immediate areas
  • 50% increase in jobs across the immediate vicinity over five years, compared to an 18% increase in London
  • 97% commercial-property occupancy rate

This research enables a better understanding of the social and economic impacts of successful place-making.

Having contributed to these achievements, we continue to learn from them. We have applied this knowledge and experience to all of our urban-regeneration projects.

Source: Hermes as at December 2018.

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Infrastructure

Hermes Infrastructure also has a longstanding commitment to the principles of responsible investment. We began investing in infrastructure in 1996 and today, with £4.4bn of assets under management, we are one of the UK’s largest direct investors. Our investment portfolio currently comprises 15 investments spanning renewable energy, regulated utilities, ports and transport infrastructure.

Our responsible approach to investing means that we believe a portfolio company’s approach to ESG considerations materially impacts long-term value and all aspects of risk management.

The public service nature of infrastructure assets means that it is important to focus on responsible investment. It also highlights the need for sustainability and a high-quality, affordable service. Infrastructure projects are generally long-term partnerships and so, it is important for key stakeholders, such as the community, regulators and investors, to engage constructively.

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Source: Hermes as at December 2018.

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Eurostar

Our investment in Eurostar is illustrative of our commitment to environmentally sustainable transport. Not only does a Eurostar journey emit 90% less carbon than the equivalent short-haul flight, Eurostar’s commitment to further reducing its impact on the environment is embodied in its “Tread Lightly” programme:

  • Less than 1% of Eurostar’s waste from its UK offices, stations and depot is sent to landfill;
  • 90% of the water used to clean Eurostar trains is recycled;
  • Recycling rates at St Pancras station have increased more than three-fold annually, with 79% of waste now recycled – up from 26% in 2017;
  • Former Eurostar power cars, business dress uniforms and train blankets are donated to museums and charities rather than disposed of;
  • Eurostar’s latest fleet of e320 trains include energy efficient lighting, recyclable fixtures and fittings, interior decoration created exclusively using water-based and eco-friendly paints and lacquers;
  • All meals on board are created with the principles of sustainability and responsible sourcing in mind; and
  • Eurostar set a new science-based target in early 2018 to increase its energy efficiency: it aims to reduce energy used by trains by 5% by 2020; introduce alternatives to fossil fuels on all trains by 2030; reduce plastics by 50% by 2020; and reduce the use of paper tickets.

Source: “Delivering Holistic Returns,” published by Hermes in 2019.  

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Thames Water

In October 2013, Hermes Infrastructure also made a significant investment in Thames Water, the UK’s largest provider of water and sewerage services. The UK water sector operates under a mature and transparent regulatory regime, providing long term stable and predictable inflation linked cash flows. This made Thames Water an attractive investment.

Private Equity

Similarly, Hermes GPE aims to generate sustainable returns for investors: we focus on fund investments and co-investments in buyouts and growth businesses. We also invest in fast growing companies operating in sectors set to benefit from trends that are reshaping global economic activity.

Working in partnership with a worldwide network of established and emerging General Partners, we construct co-investment and fund portfolios using a well-established and disciplined investment process.

Zenitas – our 200th co-investment

In December 2018, we completed our 200th co-investment: we invested in Zenitas which is a leading healthcare business that is headquartered in Melbourne and has regional operations across major Australian cities. Secular demographic trends as well as a favourable regulatory landscape are driving market growth in this area, and we believe the company’s platform is well positioned to benefit from these trends.