When you think of the biggest financial centers in the world, Pittsburgh is not typically a city that comes to mind. In fact, it’s not among the top 20 global financial centers, a list that includes cities in the United States like San Francisco, Los Angeles, Washington DC, Chicago, Boston and, of course, New York.
But that hasn’t stopped John Christopher Donahue from growing Pittsburgh-based Federated Hermes into one of the largest investment management companies in the country, with more than US$700 billion in assets.
Donahue, who joined Federated in 1972 as a law clerk and has served as President and CEO since 1998, has seen the firm through many twists and turns.
“It’s one of the biggest risks I’ve ever taken – but it was a worthy one.”
One of those twists was acquiring a majority stake in 2018 in London-based Hermes Investment Management. The pioneer of integrated ESG investing was acquired for US$298 million, and the deal gave Federated a global footprint, helping it become an international leader in responsible investments.
“It’s one of the biggest risks I’ve ever taken – but it was a worthy one,” Donahue tells The CEO Magazine.
Since then, one of Donahue’s main focuses has been merging the two corporate cultures. Luckily for Federated, Hermes had a corporate pledge that resonated with Federated leaders, so they made it their own.
“It had eight or nine things in it, such as acting ethically and responsibly, and treating clients and colleagues with dignity and respect,” he says. “We didn’t have a pledge, so we adopted theirs, and now 95 percent of our people on both sides of the pond have signed onto it.”
This pledge means that Federated Hermes approaches managing its almost 2,000 employees with the dignity of the individual as the starting point. It also means the firm keeps its promises by carrying out its mandates.
“When we say in a prospectus that we’re going to do A, B and C, then we do A, B and C,” Donahue confirms. “Just like employee trust, if you don’t have the trust of the investing public, you’ve got nothing.”
Keys to Success
Other keys to Federated Hermes’ success are hiring the right people and choosing the best business partners. When it comes to hiring, the firm looks for three qualities in job candidates: empathy, gratitude and a capacity to commit to others.
“This way, you can actually delve into a team, delve into an issue and keep commitments to other people,” Donahue explains.
Seeking out those with empathy and gratitude helps weed out non-team players and those prone to a sense of entitlement. “That doesn’t mean you can’t say, ‘I deserve more money’ or ‘I should be promoted’,” he says. “It’s a sense of gratitude for everything that’s here and working for you.”
“The secret sauce is treating a partner like a client.”
Like any successful business, Federated Hermes works with numerous partners, including accountants, custody banks, transfer agents and IT and business consultants like CGI Group. What’s striking about its partnerships is they often span multiple decades, including one relationship that’s still going strong after 60 years.
“The secret sauce is treating a partner like a client,” Donahue insists. “Last week, we had one of our partners in our board meeting.”
The Right Ingredients
As Donahue continues to drive the business forward, he draws inspiration from Federated Hermes’ heritage. The firm was founded by his father, John, and his two high school classmates in 1955. Even then, it had a family-like culture that remains a selling point.
“One of the first rules the founders implemented was, ‘We want you to enjoy coming to work’,” he says. “That was their entire employee handbook.”
“If you don’t have the trust of the investing public, you’ve got nothing.”
These days, Federated Hermes leaders focus on that sense of family when trying to entice recruits who might not consider Pittsburgh their first choice for a job in finance.
Donahue notes that the city’s rivers, mountains and friendly communities make it the perfect place to raise a family (he has eight children himself), not to mention much less expensive than trying to do so in San Francisco or New York.
So far, it appears to be working. Last year, the firm’s employee departures were running in the double digits. This year, they are back to normal – just under five percent.
It appears Pittsburgh might be the place to invest in after all.