Federated Hermes CEO Says Managers Are Losing Mandates Over ESG

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(Bloomberg) — Money managers that retreat from sustainable investment pledges are increasingly being turned away when they pitch themselves to major asset owners in Europe, according to the chief executive of Federated Hermes Inc.

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“What we’ve noticed is that in the request-for-proposal stage and in the final stage, some people get knocked down for having shifted how they think about things,” Federated Hermes CEO Chris Donahue said in an interview. 

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Europe’s investment market has been rocked this year by news of major mandates being shifted away from asset managers due to concerns they’re not sufficiently incorporating environmental, social and governance goals. 

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Most recently, Dutch pension fund PFZW pulled mandates from managers including BlackRock Inc., Bloomberg News reported in September. Federated Hermes also lost a small PFZW credit mandate, though that move was tied to staff changes at the asset manager rather than sustainability concerns, according to a person familiar with the matter.

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There may yet be further adjustments in European allocations to asset managers. PME, another Dutch pensions manager, has said it’s reviewing a €5 billion mandate with BlackRock and expects to announce a decision before the end of the year. 

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Pittsburgh-based Federated Hermes has recently won mandates from large institutional investors in Belgium, the UK and the Middle East, partly as a result of the firm’s continued focus on ESG, Donahue said. 

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The takeaway for asset managers is that “if you can’t give those clients what they properly and in their heart of hearts demand, you won’t get anywhere,” he said. 

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The development highlights the balancing act that US asset managers are trying to master. The administration of President Donald Trump has made clear it regards ESG as “woke” and even anti-American. In the European Union, meanwhile, ESG themes such as climate are enshrined in law and built into regulations affecting businesses and their investors. 

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“Some leaders in our industry went out with almost religious and moral fervor — and this is not about that, guys,” Donahue said. “I’m not the pope and I’m not the president, so therefore, what am I going to do with that? I’m only going to get in trouble.”

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While assets at Federated Hermes hit a record $871 billion at the end of September, its overall growth is largely down to its lower-margin money market fund business — which tends to see higher inflows when markets are jittery. 

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The firm’s private markets unit, meanwhile, oversees just $19 billion, which is less than peers such as Germany’s DWS Group or Britain’s Schroders Plc.

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To further boost its alternatives offering, Federated Hermes this year bought UK-based renewable energy project developer Rivington Energy Management. And last month, it agreed to acquire US real estate manager FCP. Donahue says he would consider buying a US private credit manager, and didn’t rule out a larger transaction. 

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Federated Hermes traces its roots back to the mid-1950s, when it was founded by Donahue’s father John F. Donahue and Richard B. Fisher. Growth in assets under management picked up significantly about two decades later when the firm created the industry’s first institutional-only money market funds. Federated also helped pioneer municipal bond funds.

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Donahue, who joined Federated Hermes in 1972 and this year turned 76, said he hasn’t set a retirement date. “If I’m healthy and a value-add — I’m in.”  

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