BTPS announced last year that it would be doubling its overall asset allocation to private equity – from 2% to 4% of its total £1.8bn of assets. The scheme put some £183m into HPEP II, which closed in September 2005 with £250m of commitments. The Royal Mail Pension Plan, the first external investor in a Hermes Private Equity fund, provided the balance as well as a small late commitment to the 2003 vintage first fund.
According to a report from Watson Wyatt, allocations to private equity by UK pension funds have increased significantly – the number of new mandates awarded by Watson Wyatt has increased six-fold in the past two years. While the majority of pension plans continue to favour investing through funds of funds, last year just under half opted for direct managers, said Watson Wyatt.
Despite BT’s commitment of £300m already surpassing total commitments for HPEP II, a spokesperson for Hermes was unable to provide details on a target size or hard cap for HPEP III.
However, the firm said that the partnership would invest primarily in middle-market buyouts in the UK and Europe, typically valued at between £20m and £150m, although the enlarged pool of capital would enable bigger transactions “if necessary”.
HPEP II is now around 70% invested. Investments include the £62m management buyout of Ashworth Mairs Group, a loss adjustor and outsourced service provider to the UK insurance sector and the fund’s first transaction; Mayfair Gaming, a UK bingo operator bought from Luke Johnson’s Risk Capital Partners in April of last year; and Thomas Estates, owner of Beacon Bingo and Showboat gaming centres, as a bolt-on acquisition for Mayfair Gaming.
Six of HPEP I’s seven investments have now been exited, including Park Finance Group, a car finance business, sold to Credit Suisse in July 2006; and Merlin Entertainments, sold to Blackstone Group for £102.5m in July 2005.