Investment in Hermes-run portion of government innovation fund.
The £31.3bn ($50.5bn) British Telecom Pension Scheme (BTPS), the UK’s largest, has put £75m into the green technology and low carbon segment of the UK government’s new Innovation Investment Fund (UKIIF) as part of the fund’s first closing announced today.
The UKIIF is a fund of funds structure that will be run by Hermes Private Equity, part of Hermes, the asset management company that is fully owned by the BTPS. The allocation will be made as part of BTPS’ private equity allocation.
At the end of 2008, the BTPS had an allocation of £987m to private equity, mostly via Hermes funds, according to its most recent annual report. In 2008, the scheme increased its long-term target for alternative assets from 13% to 20%.
UK government officials said that it was natural for the BT pension fund to invest in UKIIF given its links with Hermes. They said the former state-owned scheme conducted rigorous due diligence on all investments as part of their fiduciary duty to beneficiaries. The structure of the UKIIF has been designed to maximise appeal for institutional investors, UK Science Minister Lord Drayson said. The green tech portion of UKIIF will be managed mostly as a fund-of private equity funds under the banner of the Hermes Environmental Focus Fund (HEFF) and will be run by a five-strong team at Hermes Private Equity under Susan Flynn, division head. It will seek investments in clean-tech, low carbon and renewables
funds. Flynn said the team is currently recruiting another senior member to help run the new fund. There are around 50 funds in HEFF’s investible universe, although Flynn said up to 30% of the fund’s assets could be placed directly into green companies. Hermes said some of the managers selected would be pure-play clean-tech, while others would be diversified. Flynn said there were a number of investment opportunities available at attractive valuations and that Hermes was already doing due diligence on several. She was confident there could be “money in the ground” in six months.
Lord Drayson said Hermes was now in a position to invest in underlying funds to get capital to later stage undercapitalised green technology companies with good products and good management. Citing official estimates, he said a million new jobs could be created in the low carbon sector.
The UKIIF was launched by Prime Minister Gordon Brown in June 2009 with a brief to invest venture capital in technology companies with high growth potential in the life sciences, clean-tech, digital and advanced manufacturing areas. It’s targeted to grow to £1bn.
The government named Hermes and the European Investment Fund as managers for the clean-tech and technology parts of the UKIIF in December last year. The government will put £50 and £100m into the funds respectively.