Hermes buys Future Fund’s stake in Southern Water

Hermes Investment Management has substantially grown its stake in British utility Southern Water, buying a 17% shareholding previously owned by Australia’s sovereign wealth fund.

Hermes bought the 17.1% stake in Southern, which supplies water to more than 2.4m people in Hampshire and other English regions, months after reports the AUD117bn (€79bn) Future Fund planned to dispose of its 23.4% shareholding, built up since 2008.

In a statement, Hermes said it completed the transaction following the sovereign investor’s sale, and that the manager now owned 21% of the utility.

Financial terms have not been disclosed.

The last full sale of the company, in 2007, saw Royal Bank of Scotland sell Southern for £4.2bn to a group led by JP Morgan.

Its current owners include a number of pension funds, as well as infrastructure funds. 

Peter Hofbauer, head of infrastructure at Hermes Investment Management said: “We are pleased to have acquired this additional ownership interest in Southern Water, obtaining incremental governance rights, including board representation, on behalf of our clients.”

Hermes, owned by the UK’s BT Pension Scheme, would not be drawn on the client for which it acquired the stake, but a spokeswoman clarified that the transaction was not conducted on behalf of the Hermes GPE Infrastructure Fund (HIF).

HIF is backed by six UK local government pension schemes (LGPS) – including those for Dorset, Cornwall and the London borough of Barking and Dagenham – and, as a result, Hermes has been considering the launch of a dedicated LGPS vehicle as the sector sets up a number of larger asset pools to reduce costs

HIF has previously bought into Associated British Ports, in which Hermes jointly acquired a 30% stake with the Canada Pension Plan Investment Board (CPPIB) last year.

Hermes was also part of a group to buy the UK government’s stake in Eurostar, the rail company running train services between London and Paris.

Both previous deals were also supported by the Santander UK Group Pension Scheme, for which Hermes runs a segregated infrastructure account.

However, a spokesman for Sandander confirmed that the scheme had not participated in the Southern deal. 

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