News & Analysis

Lexington, Lothian buy Macquarie infra stakes from BAE

Lexington invested out of its $10bn LCP VIII vehicle, the biggest secondaries fund ever raised.

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Lexington Partners and Scottish pension fund Lothian Pension Fund split a stake in a tail-end Macquarie infrastructure fund sold by Royal Ordnance (Crown Service) Pension Scheme Trustees, which is part of BAE Systems’ pension fund, according to UK regulatory filings.

Lexington bought 58.41 percent of an interest in Macquarie European Infrastructure Fund II (MEIF II)  using its Lexington Capital Partners VIII (LCP VIII) fund. Lothian Pension Fund and its Lothian Buses Pension Fund division bought the remaining 41.59 percent of BAE’s stake. The deals closed on 26 and 27 October.

Lexington, Lothian and Macquarie declined to comment. BAE did not immediately return requests for comment.

MEIF II a is a 2007-vintage fund that closed on €4.64 billion. The fund, which is fully invested, holds nine assets including Thames Water, Swedish heating provider Varmevarden, and Airwave, a UK public safety communications firm, according to Macquarie’s website.

Lothian was already an investor in MEIF II and has also invested in MEIF I, III and IV, according to PEI data. It allocated 5.5 percent of its total investments to infrastructure and 4.8 percent to private equity as of 31 March, according to its 2014-15 annual report.

This is not the first time BAE has sold infrastructure stakes. In September, the British defence, security and aerospace company’s pension fund used the secondaries market to offload stakes in Deutsche Bank-managed RREEF Pan-European Infrastructure Fund to SL Capital Partners, Pantheon and two pension funds, according to separate filings.

Bidders on brand-name infrastructure funds are now seeking prices between a 10 percent discount to a small premium, Pantheon’s Andrea Echberg previously told Secondaries Investor. It wasn’t clear what price Lexington and Lothian paid for the MEIF II stakes.

LCP VIII closed in April on $10.1 billion and is the largest secondaries fund ever raised, smashing its $8 billion target. The vehicle was fundraising for 19 months and received commitments from limited partners including the Florida State Board of Administration, New York City Employees’ Retirement System and Kentucky Teachers’ Retirement System.