Hermes, Dalmore scoop £50m each from Strathclyde outlay

The two UK-focused funds could potentially raise nearly £3bn if hard-caps are met.

The Strathclyde Pension Fund has provided a boost to Hermes Investment Management and Dalmore Capital following a £100 million ($133.7 million; €113.5 million) injection into the managers’ respective funds.

Hermes Infrastructure Fund II and Dalmore Capital 3 have each received a £50 million commitment from the UK-based pension scheme, a little over two months after Strathclyde invested £130 million in three infrastructure and renewable energy funds.

The 20-year Hermes fund is targeting £1 billion, with a hard-cap of £2 billion, according to Strathclyde. The vehicle is understood to have a first close earlier this year of between £150 million and £200 million.

The Hermes strategy is offering three investment options of “core”, “value-added” and “standard mix”, which is set to comprise of 60 percent core and 40 percent value-added. Strathclyde has invested in the standard mix, which it said would provide the pension fund with a gross IRR of 10 percent. The value-added approach is said to provide returns of up to 14 percent.

HIF II will have a similar strategy to its £1 billion predecessor, with targeted investments in utilities, renewables, transport and social infrastructure, predominantly in the UK. The fund expects to make between 10 and 15 investments with an average value of £75 million-£150 million, Strathclyde said. The fund will invest a maximum of £300 million in a single asset. Assets in the first Hermes fund launched five years ago include Associated British Ports, Southern Water and the National Grid’s UK gas distribution business.

Strathclyde’s investment in Dalmore comes about six weeks after the firm reached a £430 million first close on the vehicle. The pension fund said Dalmore has now garnered £542 million from 10 UK pension funds and expects an additional £200 million to be committed over the next two months.

The predicted investments would bring the fund’s capital well above its £500 million target and close to its £750 million hard-cap. Dalmore Capital 3 has not confirmed any investments so far, although Strathclyde said it has a pipeline of assets worth about £750 million where it has preferred bidder status or in existing assets in which it plans to increase its stake. Dalmore is said to be confident of deploying £500 million within the next 12 months, aiming for a net IRR of 8-10 percent.

The fund is targeting assets in PFIs, offshore transmission links, student accommodation, regulated utilities, energy generation and social housing. It can invest a maximum of 20 percent elsewhere in Europe, although Strathclyde said the possibility is unlikely to come to fruition.