BT Pension awards Hermes £1bn refresher mandate

Hermes will split the amount evenly between funds and co-investments, and will invest on a global basis via its teams in London, New York and Singapore.

According to Hermes' head of private equity and chief investment officer Peter Gale, the team will look to deploy the capital in niche strategies in growth markets. Gale pointed to full valuations in the large-cap buyout market as worrying, and therefore will focus on niche strategies; those that are not cyclical.

In terms of locations, Hermes will continue to seek opportunities in Europe and the US as well as in developing markets including south-east Asia, Africa and eastern Europe.

Gathering growth
Hermes has been growing its exposure to these growth markets in recent years. Just five years ago the manager had only 10-15% exposure in these markets, it now has one-third of total assets under management (AUM) deployed in developing growth markets. Hermes currently has £4bn of private equity AUM.

BT's mandate to Hermes has been labelled by the manager as a "refresher programme", as BT previously mandated Hermes in 2011 as its sole private equity manager. At the time of this commitment, Hermes took a bold step by investing 50% of the mandate in co-investments and the other 50% in funds. At this point, co-investment was an emerging strategy, however since then it has grown in popularity as LPs are increasingly keen to take advantage of the greater control offered by co-investments and the reduced fees.

Furthermore, this kind of mandate allows BT to ensure its private equity investments complement its other investments; having greater control of the capital through co-investment means new deals can be "dovetailed" around existing investments completed via different strategies.

Hermes raised a co-investment fund in 2014, Hermes GPE PEC II LP, which closed on $480m. The fund is already 82% invested through 28 deals. The manager's co-investment programme has performed well, generating total realised returns of 1.8x and 31.3% IRR. With the PEC II fund nearing full deployment, the manager is expected to go out to the market towards the end of the year in order to raise its successor fund – PEC III.

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• Topics
• Buyouts
• Buyout
• Fundraising
• Hermes GPE