“Tailoring clients’ portfolios to our over-arching macro-economic view and their desired risk/return profiles”. That is the priority, says Peter Hofbauer, as he takes up the mantle of head of infrastructure at Hermes GPE, a UK manager of private equity and infrastructure programmes on behalf of institutional investors and pension funds.
Hofbauer, an Australian national, is a high-profile appointment for Hermes GPE, having previously been global head of infrastructure at Babcock & Brown, the once-powerful Australian investment and advisory firm that went into liquidation in 2009. He started his career with Price Waterhouse in 1980 before joining Westpac Banking Corporation in 1985 as associate director in project finance and advisory services.
After having experienced the sharp ups and downs of private infrastructure investment pre- and post-Crisis, Hofbauer appears enthused by the prospect of building Hermes GPE’s infrastructure business slowly and surely.
“I was attracted to the role because of the firm’s longstanding relationship with core clients that we’ve done a good job for,” Hofbauer tells Infrastructure Investor in an exclusive interview. “And also because the approach is strategy-led, taking into account the macro-economic environment and working with clients to focus or re-focus their portfolios in areas where they are over- or under-weight.”
Hofbauer says he likes the fact that Hermes GPE is not a distribution-led business with a focus on assets under management. The focus is on “working with core clients and investing on their behalf” rather than “spending a lot of time raising new capital”.
However, as a relatively new business – Hermes GPE was formed in April 2010 from the merger of the private equity funds of funds businesses of Hermes Fund Managers and Gartmore Investment Management – he is also keen to win new clients by promoting the firm as an “outsourced in-house team”. He points out: “Some of our existing clients want us to have more capital so that we have scale and can participate in the market in a more influential way, but we’ll only do so if it adds value to what we’re doing currently.”
The organisation’s involvement in private infrastructure investment pre-dates the merger, with Hermes Fund Managers having invested in the asset class as far back as 2001. On 12 April 2011, Hermes GPE managed over £5 billion (€5.7 billion; $8.3 billion) of capital for institutional investors and pension funds, with £500 million of this invested in infrastructure.
Hofbauer says Hermes GPE will continue to be “quite flexible” in its approach to portfolio construction on behalf of its clients. The firm has accessed the asset class through a number of different channels including primaries, co-investments and secondaries. This gives clients “access to different parts of the investment life cycle,” he notes.
The secondaries element of this strategy is something that interests Hofbauer. He says that Hermes GPE has looked at around $2 billion of secondary transactions in total and “concluded a number” of these. As the yet-nascent secondaries opportunity in infrastructure unfolds, he sees its role primarily in the context of portfolio construction and helping clients to achieve their desired risk/return balance. He does not see the same returns-driven opportunity as exists in private equity, where a plethora of specialist funds have been established seeking to buy secondary interests at a discount to net asset value.
Reflecting on the asset class as a whole, Hofbauer says he believes infrastructure represents an “intuitive opportunity” in the face of a lack of empirical data. He says he understands institutions’ reluctance to commit to the asset class given the lack of research and track records, and the fact that a lot of capital was raised for infrastructure pre-Crisis at the top of the market. The asset class, he concludes, is “not as baked” as many investors would like it to be.