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Response to FCA interim report

Saker Nusseibeh, Chief Executive, Hermes Investment Management responds to the FCA interim report.

We welcome the FCA’s efforts to seek a better deal for savers, which is overdue. As a business, our mission is to help savers and beneficiaries retire better. We believe this can only be achieved by looking at long-term holistic returns that go beyond the narrow short-term financial metrics pursued by many. It is this reason, we believe, that explains our track record over the past three years and five years, with 88.9% and 92.3% of our strategies outperforming the benchmark respectively. Hermes has delivered this with an active share of 87%, that at least indicates that we are delivering active, as opposed to closet index, management.

As the pioneers in the field of corporate governance, we are proud to say that in dealing with funds, each is overseen by a board comprised mainly of independent directors, plus two Hermes executives, ensuring that a strong governance framework protects investors’ interests.

As a business, we fundamentally understand the paradigm that while we as an industry deal in large numbers (size of mandates, size of investments, AUM etc., and live in a bubble where professionals are highly paid) the average annual retirement income for most savers or beneficiaries is £12,000- £15000 p.a. world- wide. We are therefore keenly aware of how important it is to make every pound of their savings work for them in the long term. This involves beating the market, but it also involves reducing costs and making them transparent, as well as advocating for reforms to the financial system that benefits the savers and the society they live in.

The average management fee for our funds is 75bps, at the lower end of the 75bps-100bps range observed by the FCA. We aim to lower this further, and are seeking to do so. We have led the industry by charging our funds only the costs accrued (not a per centum) transparently (we are in the fund management not fund administration business) and we support the efforts of industry bodies such as TISA and the IA, which are assessing how overall costs can be lowered and communicated more clearly.

Mr. David Pitt Watson, an alumni of Hermes, has clearly shown how the high charges in the UK erode the wealth of savers compared to, say, the Netherlands. The issue of charges becomes more urgent when the quantum of future returns from savings is likely to be in low single digit numbers for years to come.

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