How BT Pension invests in PE

Hermes GPE received a $1bn private equity mandate from the UK corporate pension this week.

BT Pension Scheme, the UK’s largest corporate defined benefit pension fund, this week awarded a $1 billion private equity mandate to Hermes GPE, a joint venture of Hermes Investment Management.

The £54.8 billion ($73.7 billion; €63.9 billion) UK pension has been a longstanding investor in private equity and about 3 percent of its portfolio is invested in the asset class, according to PEI data. Hermes Investment Management, of which Hermes GPE is a joint venture, is its in-house investment manager.

Of the $1 billion mandate, $100 million has been invested in Hermes GPE’s fourth co-investment fund PEC IV, which held its final close on $603.5 million this week. The remaining $900 million will be split equally between co-investments and fund commitments, according to a statement about the mandate. Capital will be deployed over three years.

Here are three things to know about how the pension allocates to PE.

Co-investment are a priority

Co-investments made from the separately managed account with Hermes GPE will target mid-market companies in Europe, North America and Asia that typically have an enterprise value of less than $500 million. In line with Hermes GPE’s co-investment portfolio, it will  focus on growth buyouts and small and mid-sized niche buyouts in target sectors.

Elias Korosis, a partner at Hermes GPE, told Private Equity International in June this year that the firm plans to back companies in digital, healthcare and sustainable innovation that are growing at about 30 percent to 50 percent per year.

Among its latest co-investments include Saúde Viável Group, a high-end hair loss clinic chain in Portugal and Spain alongside Porto-based firm Vallis Capital Partners and UK consumer health clinic operator SK:N alongside lower mid-market firm TriSpan.

It backs growth managers

BTPS has $450 million earmarked over the next three years for fund commitments and will back growth equity-focused and emerging managers.

LP appetite for growth equity managers has increased, Korosis told PEI. “There’s this gap in the market and the industry is running at it from all three directions to fill the gap. The existing growth equity shops are getting bigger; the successful venture guys increasingly want to play in this space and raise growth funds; and a number of buyout shops are raising growth funds. Everyone wants to come into this space.”

GPs Hermes GPE has backed in recent years include Mayfair Equity Partners, Duke Street and Bridges Ventures.

It’s active on the secondaries market

Hermes GPE, on behalf of BTPS, sold fund interests in at least three vehicles into Hermes GPE Global Secondary II last year, according to UK regulatory filings. Proceeds from the deal were to be redeployed by BTPS into a new strategy to be managed by Hermes, sister publication Secondaries Investor reported at the time.

The deal, which was worth almost $1 billion in net asset value plus unfunded commitments, allowed Hermes GPE to move away from buyout funds and focus on growth and emerging markets and managers.