Hermes makes first close on UK clean-tech fund

London, 28 January: The UK government’s clean-tech private equity fund achieved its first close at £125 million ($202 million) on Tuesday.

Managed by Hermes Private Equity, the fund-of-funds received a cornerstone investment of £50 million from the government and £75 million from the BT Pension Scheme, owner of asset management firm Hermes.

Susan Flynn, CEO of Hermes Private Equity, said the fund aims to tap further private investment to raise a total of £200 million by the end of the year.

She said the Hermes Environmental Innovation Fund will be invested in about 10 private equity funds from an identified universe of around 50, but declined to name any of them.

Some of these are specialist clean-tech funds, but others are more general private equity funds with good track records – a strategy necessary to deliver the top quartile returns promised by UK science and innovation minister Paul Drayson.

The fund will have at least of 50% of its total invested in clean-tech funds and 50% in UK businesses, Flynn said. The fund can also co-invest up to 30% of its cash directly into clean-tech companies in which the funds themselves are investing.

“The fund will invest over a three-year period with an option for five years,” she said, supporting companies on the verge of commercialising green technologies. “We feel reasonably confident that money will be on the ground within six months,” she added.

The Hermes fund is one half of the government’s UK Innovation Investment Fund (UKIIF), a public-private fund that seeks to stimulate UK growth via private equity investment in clean-tech, biotech and IT industries. The government has seeded it with £150 million with the aim of attracting around £1 billion of private investment.

Drayson said: “Investment has flowed into the UKIIF at extraordinary speed. It’s already one of the largest European funds for investing in high-tech firms. But what's more important is rapidly channelling that capital into Britain's burgeoning green-tech sector. After a tough spell, things are looking up for our entrepreneurs and innovators.”

He added that an announcement is due soon on the other half of the fund-of-funds, to be managed by the European Investment Fund.

Hermes manages assets worth around £21.6 billion, mostly on behalf of the BT Pension Scheme, and is well known for its responsible investment approach. Flynn oversees the firm’s five-strong private equity investing team that is currently recruiting an additional senior member.