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Hermes closes second fund

The UK midmarket fund’s second fund includes an investment by the Royal Mail Pension Plan, the first commitment of third party capital that the firm has received.

Hermes Private Equity (HPE), the midmarket buyout arm of Hermes Pensions Management, has held a first and final close of its £250 million (€371 million; $456 million) second fund, Hermes Private Equity Partners II (HPEP II).
 
The new fund received a £183 million commitment from the pension scheme of UK telecoms company BT, BTPS, of which Hermes Pensions Management is a wholly-owned subsidiary.

Rod Selkirk, chief executive, Hermes Private Equity

The firm also received a £100 million commitment from the Royal Mail Pension Plan, its first from a third party investor. Rod Selkirk, chief executive of HPE, told PEO that raising money from an external investor was a first step in the firm’s medium term strategy to bring the private equity operations in line with the rest of Hermes by raising more money from third party clients. He added that the firm hoped to bring more external investors on board for its next fund.
 
Approximately £67 million of Royal Mail’s commitment will be invested in HPEP II. The remainder will be a late addition to the 2003 vintage HPEP I. “We have a long standing relationship with the Royal Mail Pension Plan, and they have a lot of capital invested in other parts of Hermes,” said Selkirk.

We have a long standing relationship with the Royal Mail Pension Plan, and they have a lot of capital invested in other parts of Hermes

Rod Selkirk, chief executive, Hermes Private Equity

HPEP I initially raised £200 million from BTPS in 2003. To date it has invested £125 million in seven transactions, of which two have already been exited. The firm sold Merlin Entertainments, operator of theme parks including the London Dungeon, to Blackstone for £103 million last May; and a stake in French hotel operator Financière Galaxie to Eurazeo for an undisclosed price in July.
 
All the firm’s new investment activity will now go through HPEP II, which like its predecessor will invest in European midmarket buyouts ranging from £20 million to £120 million in size.
 
The remaining money in HPEP I, including the new commitment from Royal Mail, will be used to support growth and acquisitions at existing portfolio companies. Selkirk said that he expected the fund to invest around £160 million in total, rather than being fully invested.
 
Hermes Pensions Management invests around £54 billion on behalf of over 220 institutional investors.