Hermes Launches UK-Focused Direct Lending Strategy

Sep 9 2016 | 5:38pm ET

Hermes Investment Management has launched a new direct lending strategy that will focus initially on senior-secured loans to small and medium enterprises in the U.K.

The strategy has the support of an unidentified cornerstone investor, according to the company, and will be followed by the launch of a fund later this year, subject to regulatory approval.

As with other direct lending strategies, the Hermes approach aims to generate stable, low-correlation returns that offer competitive alternatives to the low yields currently available on traded credit markets. The strategy will have initially focus on opportunities in the UK, which has the largest and most creditor-friendly lending market in Europe, Hermes said, although it will have flexibility to invest across the continent if conditions warrant. 

UK senior-secured transactions will be originated through partnership with Royal Bank of Scotland, a major lender in the sector with a substantial book of existing loans. 

“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 55 bps more yield than larger loans in recent years,” commented Patrick Marshall, head of private debt & CLOs for Hermes. “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 lend to attractive, growing businesses on terms seeking capital preservation and yield capture.”

Headquartered in London, Hermes manages more than £26 billion on behalf of more than 330 clients across equities, fixed income, alternatives and real estate, with £3.9 billion in infrastructure investments. 

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