CPPIB backs $1bn Hermes FoF restructuring – exclusive

The transaction allows Hermes GPE, on behalf of BT Pension Scheme, to reallocate to strategies including emerging markets and new managers.

Canada Pension Plan Investment Board has backed a deal which allowed Hermes GPE to continue managing a funds portfolio and the UK’s second-largest pension fund to reallocate capital, Secondaries Investor has learned.

UK regulatory filings from April and May show London-headquartered Hermes transferred fund interests held in at least three vehicles into a new fund named Hermes GPE Global Secondary II.

The deal, worth almost $1 billion in net asset value plus unfunded commitments, allowed Hermes to retain management fees over the fund of funds portfolio, according to three sources familiar with the matter. CPPIB backed the majority of deal, the sources said.

Ardian joined as a minority co-investor, according to two of the sources.

It is understood that BT Pension Scheme, historically Hermes’s largest investor, cashed out of the funds of funds to CPPIB and Ardian. The deal allows Hermes, on behalf of BTPS, to move away from vanilla buyout funds and focus on high-growth funds and strategies including emerging markets and emerging managers.

Proceeds from the deal will be redeployed by BTPS into a new strategy to be managed by Hermes in the coming months, Secondaries Investor understands.

The deal closed in the first quarter of this year, two of the sources said.

The filings show some of the stakes include:

  • Partners Group Secondary 2008, a 2007-vintage €2.5 billion secondaries fund
  • Carlyle Europe Partners IV, a 2014-vintage €3.75 billion fund and Carlyle Europe Technology Partners III, a 2014-vintage €656.5 million fund
  • Rutland Fund III, a 2014-vintage £263 million ($248 million; €299 million) buyout fund
  • Exponent Private Equity Partners, a 2004-vintage £400 million buyout fund
  • Exponent Private Equity Partners III, a 2015-vintage £1 billion buyout fund
  • IK VII, a 2013-vintage €1.4 billion buyout fund
  • BC European Capital IX, a 2011-vintage €6.7 billion buyout fund
  • EQT VI, a 2011-vintage €4.8 billion buyout fund
  • Stirling Square Capital Partners Third Fund, a 2014-vintage €600 million buyout fund

The stakes were held in vehicles including Hermes USA Investors Venture, Hermes Private Equity Investments Holding 2004 and Hermes GPE PEF I, the filings show.

It is understood that CPPIB originated the deal and no intermediary was used. The Canadian pension giant noted in its latest annual report that it had purchased two large LP portfolios in the 12 months to 31 March. One of those deals was the purchase of more than $1 billion worth of pre-crisis private equity fund stakes from Ardian, as Secondaries Investor reported last year. It is understood the deal with Hermes was the other transaction.

Traditional secondaries buyers are under “competitive pressure” from LPs seeking direct access to deals, Campbell Lutyens noted in its 2018 Secondary Market Overview Report. These players are finding creative ways to secure dealflow, through hired managers, separate accounts or co-investments, the report added.

BT Pension Scheme had £49.3 billion in net assets as of 30 June, according to its latest annual report. In April it sold a 60 percent stake in Hermes to US-based Federated Investors worth £246 million. The pension retained a 29.5 percent share in the group which it first established in 1983.

Hermes GPE manages around $5 billion in private equity assets, according to PEI data. In October sister publication Private Equity International reported that Hermes was tilting towards more separately managed accounts through its co-investment programmes due to demand from several LPs.

CPPIB, Hermes, BT Pension, Ardian, Partners Group, Rutland, IK, EQT, BC Partners, Carlyle, Exponent and Stirling Square all declined to comment.