Exclusive: Hermes to launch second infra fund

The UK asset manager is currently pre-marketing a successor to its £1bn debut vehicle that is set to focus solely on primary investments.

Hermes Investment Management is approaching the launch of its second infrastructure fund after deploying its debut vehicle at a brisk pace over the last couple of years.

Several people with knowledge of the matter told Infrastructure Investor that the London-based firm is currently talking to investors about the vehicle, which will likely target a size similar to that of its predecessor.

Hermes Infrastructure Fund reached its final close on £1 billion ($1.25 billion; €1.17 billion) in May 2015, garnering an additional £160 million through related accounts.

A point of difference between Fund I and Fund II, a source said, will be the latter’s sole focus on primary investments, when the firm’s debut vehicle included some fund investments and secondary transactions. Sources expected Fund II to target returns of between 10 and 12 percent.

“As part of the HIF I fundraising we undertook not to raise any successor pooled funds with the same investment Strategy as HIF I until HIF I was substantially deployed. HIF I is now substantially deployed, as we have been able to access high quality investment opportunities in scale,” Peter Hofbauer, head of infrastructure at Hermes, told Infrastructure Investor.

While declining to confirm or comment on the planned launch of HIF II, he added that the firm would continue to target long-term, inflation-linked investments, with a significant part of the pipeline coming from “follow-on investment opportunities in existing assets, that are likely to form the foundation assets and therefore investment opportunity for new clients”.

“As such we are raising assets for UK infrastructure opportunities following our previous successful fund raisings via managed accounts and/or new pooled investment vehicles post HIF I,” he concluded.

Hofbauer estimates that HIF I’s annual deployment rate has averaged between £300 million and £350 million. Assets backed by the fund include National Grid’s UK gas distribution business, cross-Channel train operator Eurostar, metering business Energy Assets Group, utility Southern Water and port operator Associated British Ports.

The vehicle counts 18 LPs in total, with European corporate pension funds representing 60 percent of the money raised. HIF I’s investors include the Nottinghamshire Pension Fund, the London Borough of Barking & Dagenham Pension Fund, the Cornwall Council Pension Fund, the Dorset County Pension Fund, the Devon County Council Pension Fund, the Santander (UK) Common Investment Fund and the Worcestershire County Council Pension Fund, according to Infrastructure Investor data.