The mandate, called Horizon III, will pursue the strategy through a 50/50 funds and direct co-investment model established following similar sized allocations managed for the £57bn (€67.5bn) BTPS – Horizon 1 (2015) and Horizon II (2018).
It will be managed by Hermes GPE LLP, a wholly owned subsidiary of Federated Hermes that has been constructing private equity portfolios for the defined benefit pension scheme since the 2000s.
“The Horizon mandates have delivered consistent, sustainable returns for the scheme throughout market cycles,” said Morten Nilsson, chief executive officer for BT Pension Scheme Management.
“Horizon III demonstrates our continued commitment to this asset class with investments that meet our long-term sustainability goals.”
J. Christopher Donahue, president and CEO of Federated Hermes said the Horizon III mandate demonstrated BTPS’s continued confidence in the ability of Federated Hermes to deliver its investment objectives in a very competitive global private equity market.
Hermes used to be the in-house asset manager for BTPS, which sold its majority stake in Hermes to Federated Investors in 2018 and the remaining stake in August last year.
Federated Hermes is also the investment manager of BTPS’s UK property investments. Last week Federated Hermes announced that, on behalf of BTPS, it and Canada Pension Plan Investment Board were partnering to own and develop Silverstone Park, a business park adjacent to the home of the Formula One Grand Prix in the UK.
According to a recent study carried out by Golding Capital Partners in association with an academic from HEC School of Management Paris, the average alpha delivered by private equity compared with similar stock investments is 9.9%, rising to as much as 35% during periods of crisis.
The study also found that the driver for recurrence of attractive alpha is the earlier performance of the individuals directly involved in the respective transactions rather than the track record at the asset manager level.