UK mulls $760m fund interests sale

Secondaries firms’ next big auction could be in the UK, where the government is weighing up the sale of $760 million-worth of Royal Mail pension private equity interests.

“The government’s objective is to realise the assets in a measured fashion within the context of protecting value for the tax payer, while minimising market distortion,” a spokeswoman for the UK government’s Department for Business, Innovation and Skills (BIS) told Secondaries Investor, referencing all of the assets previously transferred to the government. The BIS spokeswoman offered the caveat, however, that it may opt to hold less liquid assets for the longer term and “potentially to maturity where this protects value to the taxpayer”.

In April 2012 the government removed the Royal Mail’s estimated £10 billion pension deficit by transferring historic liabilities from the Royal Mail Pension Plan (RMPP) to a new unfunded statutory pension scheme, the Royal Mail Statutory Pension Scheme.

As part of this intervention, around £28.6 billion of the RMPP’s assets transferred to the UK government.

At the end of 2013 the UK government said the book value of the remaining assets was around £2.2 billion including around £760 million in private equity partnerships. No private equity interests have been sold to date.

RMPP invests in global private equity with managers including Pantheon Ventures, Pathway Capital, Hermes Investment Management and Hamilton Lane, according to PEI data. It has an appetite for continued investment into global fund of funds.

In July 2013, the Pension Plan appointed Bev Durston, former Head of Alternatives at British Airways Pension Investment Management, to help increase their level of investments into private markets. RMPP said Durston would work part-time and would likely increase the Plan’s investments in private equity.

As of March 2013, RMPP allocated 2.7% of total investments into private equity funds, including private debt, and appointed Oaktree and ICG as investment managers for the private debt investments, according to PEI Research & Analytics.

RMPP has commitments of £35 million to Hermes Private Equity Partners, a 2003 vintage £300 million fund, and an £87 million re-up to the £250 million 2005 vintage Hermes Fund II. Both funds concentrate on Western Europe, according to PEI data.