Hermes Private Equity set to increase Asian commitments

Hermes Private Equity, the private equity business of institutional fund manager Hermes Fund Manager, is looking to increase its exposure to Asian private equity. The Asia-Pacific region currently accounts for around 11% of Hermes Private Equity’s private equity portfolio, but this is expected to increase over the long term.

Lynsey Register, investment manager responsible for the Asia-Pacific region says Hermes Private Equity is currently invested in 10 managers in Asia, but is looking to invest in one or two more this year. She recently took a diligence trip to the region to look at potential funds that may meet Hermes Private Equity’s investment criteria.

Hermes Private Equity CEO Susan Flynn says: “Hermes Private Equity is in investment mode. It’s business as usual, but our investment pace has been a lot slower because there haven’t been as many investment opportunities compared to previous years. We will be putting more money into Asian funds.”

She added she has often been asked whether Hermes Private Equity would open an office in Asia or the US . She admits you can do business from the UK, but especially in Asia it would make a difference to have people on the ground and establishing an overseas presence is likely in the next couple of years. One of the challenges she says of investing in the Asia Pacific region is that there are few performance benchmarks so it is very hard to know whether the group you’re looking at is top quartile.

According to Lynsey Register there are quality managers emerging in Asia and they are starting to raise larger funds, however they have yet to prove themselves at that size. She says some fantastic returns have been achieved but these have largely been demonstrated in much smaller funds and often on a handful of exits and so the actual sums are small. She adds: “To date, most activity has been in growth capital and pre-IPO plays, but buyout activity is increasing and a lot of funds are being opportunistic to get deals done. What we like is that given the strong macro growth story in the region, particularly China and India, returns can be achieved without the use of leverage”.

Hermes Private Equity has been investing globally in primary partnerships since the 1990s and has over £1.7bn assets under management in private equity funds as at 30 September 2009.

Since 2004, fund investments have been made through annual partnerships. Each annual fund commits up to £400m in between 12 to 20 primary partnerships, and is diversified by geography, year and sub asset class. Currently, North America accounts for 42% of total private equity investment; Europe takes 39%, Asia Pacific stands at 11% and global commitments account for the remaining 8%. In terms of sector, large buyout funds take the lion’s share of commitments at 33.5% followed by infrastructure at 21.3%, mid-market buyouts at 13.6%, growth capital at 6.2%, small buyouts at 6.1%, venture capital at 5.9%, mezzanine at 5%, secondaries at 4.8%, fund-of-funds at 2.2% and distressed funds at 1.3%.

Hermes Private Equity is owned by Hermes Fund Managers, one of the largest institutional fund managers in the UK with over £30bn under management. Hermes Fund Managers is owned by its largest investor, the BT Pension Scheme.