Private equity and private infrastructure manager Hermes GPE wants to make all aspects of the asset classes accessible to clients - at least those willing to take it seriously, CEO Alan MacKay tells Raquel Pichardo-Allison
Tackling fees
These types of specialised offerings are where investors should be spending on fees, instead of on traditional fund investing, argued MacKay. Hermes’ business model is based around keeping fees low on traditional products while offering investors access to more specialised ones.
“We’re going to charge you less to invest in funds, because we’re very confident in our ability to do the co-investing bit...and we have to charge you a reasonable fee to make our business work. But the benefit of doing that and doing it well is that we can charge you less for just the more straight forward thing of investing in funds,” said MacKay.
It is understood management fees on traditional funds of funds are 80 basis points with performance fees of around 5%.
MacKay declined to say how much Hermes charges on management fees but said because of its bespoke asset manager offering, its management fees are “significantly below” that.
“The management fees for private equity fund investing should be much more like other asset classes. We’re going to lead the way by taking our tariffs down. If the 80bps is accurate, it should come down to about half of that over time,” said MacKay.
Finally, like other Hermes businesses, ESG factors play a big role in how MacKay and his team invest.
He said there has been an evolution over the past three years which has seen private equity managers better embracing ESG factors. Traditionally, private equity managers have looked at ESG defensively, by screening out certain companies.
“Private equity is blessed by a fantastic G – governance model. It’s always done the basics in environmental and socially responsible domain. But what we’ve started to see in the past three years, we’re starting to see an aspiration to have environmental responsibility and social responsibility driven to a higher level. And it’s not driven by philanthropy. It’s driven by the positive financial economic benefits that follow,” said MacKay.
He added: “They’ve found that instead of being a softie – it’s actually got hard metrics. Less energy, fewer costs, everyone’s happy.”
MacKay has spent time encouraging private equity managers around the world to align their policies on environmental, social and governance issues.
Global private equity groups – like the European Venture Capital Association, the Emerging Markets Private Equity Association, and others – tend to have ESG policies in place. “They all have principles and guidelines and they’re all very good,” he said. So rather than replace those guidelines in an attempt to create a one-size fits all policy, he’d like organisations to work together to create policies that are stylistically similar and use the same terms for the same labels, he said.
The goal, said MacKay, is for “global private equity to look like it’s joined up from the outside”.
