By Daniel Lanyon on Thursday 15 September 2016
The £26bn fund management firm in charge of the BT pension scheme has made a move into the alternative credit space with the launch of a new direct lending strategy.
Hermes Investment Managment has thrust itself into the alternative credit space with the launch of a new direct lending strategy after an initial commitment from an institutional investor, ahead of a fund launch later this year.
The Hermes Direct Lending Strategy has been been principally backed by Royal Bank of Scotland and Hermes intends to follow this with the launch of a fund later in the year, subject to regulatory approval.
The strategy will provide investors access to stable and low-correlated returns, Hermes says, offered by predominantly senior-secured loans to small and medium enterprises.
"It will initially have a UK focus, where there is the largest and most creditor-friendly lending market in Europe, whilst maintaining flexibility to invest across the continent," a spokesperson for Hermes said.
UK senior-secured transactions will be originated through partnership with Royal Bank of Scotland which is already a major lender in this sector with a substantial book of existing loans.
The team’s own extensive network of contacts among private equity firms, banks and borrowing businesses will also provide a source of origination across the continent. Hermes believes this will provide a consistent flow of attractive deals across a broad range of industries.
Patrick Marshall, head of private debt & CLOs at Hermes Investment Management, said: “UK senior loans have generated stable returns in the last eight years, despite the financial crisis, with those extended to mid-market companies offering about 55bps more yield than larger loans in recent years. The UK has the strongest creditor rights in Europe, which provides greater downside protection for investors".
"Through the Hermes Direct Lending Strategy we aim to consistently outperform for our investors by lending to attractive, growing businesses on terms seeking capital preservation and yield capture,” he added.