Infrastructure Fund Claims: Aberdeen v Hermes update

A claim brought by Aberdeen City Council in its capacity as the administering authority of the Aberdeen City Counsel Pension Council Fund (also known as the North East Scotland Pension Fund or NESPF) against the GP and Manager of an infrastructure fund, Hermes Infrastructure Fund II (the Fund) continues to progress through the English Courts. The claim presents a relatively rare opportunity for investors, GPs and managers to benchmark or scenario plan the NESPF claim scenario versus their own experiences, documents and processes. Infrastructure finance provides are also watching the claim closely.

Our first article about this claim can be accessed here [link]. That article was published in March, after the Particulars of Claim and Claim Form had been served, but before the Defence and Reply.

The defendants’ Defence and the claimant’s Reply have since been served, meaning parties’ statements of case ought now to be complete.

In this update we:

• summarise the claim and the parties’ respective positions;
• revisit “points to watch” highlighted in our previous article;
• outline the claim chronology; and
• provide some commentary on next steps and the potential implications of the claim.

This article aims to provide sufficient context to the claim to enable the article to be read as a standalone piece, without the need to read the first article. However, the first article contains some additional points of detail on the Particulars of Claim, not repeated here.

The claim

The claim concerns an investment in a portfolio of five Swedish windfarm assets (known together as the Ventus Portfolio) in August 2019. Those assets were held within the Fund’s “core” portfolio. The Fund was established as a 2017 English law limited partnership and focused on infrastructure assets in energy, financial, industrial and utilities sectors, with a 20 year term. It is claimed that the Ventus Portfolio was an investment that “no competent infrastructure investment manager would have made” and took “an existential gamble on power generation risk and electricity price risk.” The Ventus Portfolio involved investment of £104.2m by the Fund and had a valuation of £17m by 30 September 2025. That difference is at the centre of the NESPF’s damages claims against both the GP and the Manager of the Fund.

The claim by NESPF against the GP is a direct contractual claim under the Limited Partnership Agreement (or LPA), to which both the GP and NESPF are party. Under the LPA (as is usual for private asset funds) the GP owes contractual obligations to each LP individually as partners. Under English law, limited partnerships act by their general partner, rather than in their own name.

Legal basis for LP claim vs GP

The GP is said to have breached contractual obligations to the LP under the LPA to: (i) ensure that the Manager (as separate entity appointed by the GP to manage the Fund) devoted as much of its time and attention and deployed such experienced staff as was reasonably required for the proper management, operation and administration of the Fund; and (ii) to procure that the Manager operated and managed the Fund in accordance with the LPA and the investment management agreement that governed the Manager’s obligations (the IMA).

Legal basis for claim vs Manager

The basis for the claim against the Manager is legally and procedurally more complex. Although the Fund has a contractual nexus with the Manager under the IMA (acting via the GP), individual LPs are not party to the IMA. This means that any claim against the Manager under the IMA is a claim of the Fund / partnership generally and any LP seeking to advance such a claim needs to do so derivatively on behalf of the Fund / partnership, requiring the Court’s permission (the general rule being that for a limited partnership a partnership claim can normally only be brought by the partnership as a whole acting via the general partner). A claiming LP must demonstrate that there are “special circumstances” that justify the English Court permitting an LP to bring a derivative claim. Here, an application would need to be made (and is now expected to be made) by the LP claimant NESPF.

Even if the Court were to grant permission for a derivative claim to be brought, English authority indicates that the consequence for the LP claimant of bringing such a claim would be the loss of its limited liability protection status (the default status of limited partners in an English law limited partnership) for the duration of the claim, on the basis that any claim is an asset of the Fund and bringing the claim would constitute involvement in management of the Fund by the LP and trigger loss of limited liability protection.

Summary of allegations

NESPF’s allegation underpinning its claim against the Manager (and so also its claim against the GP for its obligations in respect of the Manager) is that the Ventus Portfolio investments involved risks wholly incompatible with the conservative, low-volatility, long-term profile specified for Core Portfolio investments in the Private Placement Memorandum (PPM) and the LPA. The LP claimant claims that the investment was structured in a way that exposed the Fund to substantial and foreseeable risks—particularly risks arising from: (i) the wind farm projects’ entry into “baseload” power purchase agreements (PPAs), requiring the projects to supply a predetermined volume of electricity to buyers; (ii) inherent volatility in Swedish electricity markets; (iii) the high leverage of the projects; and (iv) insufficient contractual protections for the project entities. The LP claimant claims that any reasonably competent infrastructure investment manager conducting proper diligence would have identified these material risks, and thus no competent manager would have made the investment or classified the investment as “Core.” Doing so, it is said, involved “an existential gamble on power generation risk and electricity price risk.”

Each of the COVID-19 pandemic and the Russian invasion of Ukraine had a material impact on energy prices which, when combined with other factors, impacted the viability of the Ventus Portfolio. NESPF’s case is not that the Manager ought to have anticipated such developments, but ought to have identified vulnerabilities with the projects (see (i) to (iv) above) which ought to have precluded the investment’s suitability in the first place.

Summary of Defence - fault lines of the dispute

The Defence makes the following key points:

• Poor performance of an investment is not in and of itself actionable. Whether the Manager has met the standard of a competent manager depends on the process / assessment conducted at the time the investment was made (and its adequacy), rather than the outcome in circumstances where the risks inherent in the investment were understood and well documented.
• The structure of the projects, including entry by the project entities into baseload PPAs, was market standard and the risks were known and analysed. Losses were caused by unforeseeable market events and risks (including COVID-19 and the invasion of Ukraine)
• The process followed and assessment conducted by the Manager were reasonable and were undertaken with the support of market-leading third party experts. Detailed financial modelling of foreseeable scenarios was conducted.
• Classification of an investment as “Core” was to be a good faith judgement of the Manager, not an objective or outcome-based assessment.
• Any loss is yet to crystallise; the Fund has 11 years of its term left and the Ventus Portfolio represents only a part of the Fund’s entire portfolio. The Fund’s portfolio overall is projected to make a positive return, and each LP invested in the Fund, not an individual asset within the Fund.
• The contractual documents contain exclusions and limitations of liability, excluding Manager and GP liability except in cases of fraud, wilful misconduct or gross negligence.
• The “special circumstances” requirement to enable a LP claimant to bring a derivative claim against the Manager on behalf of the Fund, has not been satisfied. NESPF is in breach of the LPA obligation not to take part in the management of the Fund, and the GP and Manager reserve the right to make a counterclaim / seek a declaration that the LP claimant would lose its limited liability protection for the duration of any derivative claim against the Manager.

In summary, the Defence focusses on contesting liability by reference to the standard of care (not outcome), the appropriateness of process, exclusion of liability, questioning the LP claimant’s standing to bring the claim against the Manager on behalf of the Fund, and highlighting structural and commercial risk consequences for the LP claimant should the action continue.

Although there is disagreement on the core issues of breach, liability and loss, there are, as is typical with any claim, points on which the parties agree. In particular, there is material common ground on the extent of the duty owed by the Manager as a competent manager. The defence admits in various places that the duty of a competent manager extended to doing things identified by NESPF. It then asserts that those things were in fact done. For example:

• NESPF asserts that any competent manager would have carried out robust sensitivity analysis to understand financial performance in a range of electricity price scenarios. The Manager admits that a competent manager would have done this and asserts that is what it in fact did.
• NESPF asserts that any competent manager would have analysed power generation at multiple confidence levels, used site-specific data and accounted for outages. The Manager admits that a competent manager would have analysed these points but then asserts that such analysis was in fact done.
• NESPF asserts that any competent manager would have carried out robust sensitivity analysis on the projects’ ability to service debt and maintain covenant compliance. The Manager admits that any competent manager would have done this and asserts that was in fact done.

These fault lines in the case help highlight a dynamic of information asymmetry between what the Manager knows and what the LP claimant knows about the investment process that was followed. The information required to substantiate an LP claim in mismanagement is not typically readily available to an LP, and a full disclosure exercise (to obtain relevant documents) only occurs far later in English Court proceedings. This dynamic represents a practical impediment for LPs.

Looking forward the fault lines of the dispute are likely to be the LP claimant’s standing to bring the derivative claim against the Manager and, if permitted to do so, whether that will be at the price of loss of limited liability protection, and a battle of expert evidence as to the foreseeability of risks and whether the Manager’s due diligence, modelling and use of third party experts met the largely admitted requirements of a competent manager.

The claimant’s Reply, as is permitted, takes a minimalist approach. The Manager’s ability to rely on the limitations and exclusions of liability typical in infrastructure (and other) fund structures is denied and so becomes another fault line in the case which will be keenly followed. Interestingly the claimant clarifies that its case is that the valuation date for damages purposes will be the date of trial and, in a belated qualification to its Particulars of Claim, makes clear that, on the basis that the Manager did not understand the risks inherent in the Ventus Portfolio, the claimant reserves its right to challenge the Manager’s NAV figures advised to LP investors; such that a valuation challenge is another potential fault line.

Next steps and implications

The next step in the claim is expected to be a case management conference, at which the scope of disclosure and directions to trial (including the scope of expert evidence) will be discussed. We anticipate that any application by the LP claimant for permission to bring a derivative claim against the Manager (and any cross-application by the Manager and GP e.g. for a declaration on the impact of that claim on the LP Claimant’s liability position) will be considered at that hearing.

As to the implications of this claim, having now seen the parties’ statements of case in full:

A concern on the Manager/GP side will be that one claim breaking cover may encourage others. Possibly, that will depend on how and on whether the case proceeds, and whether, at the permission phase, permission is given, and, if so, with what consequences as to loss of limited liability protection.

While as private assets democratise and retail opportunities in private assets become more widespread, there will be concern that patience thresholds erode. Retail/wealth opportunities will, however, tend not to follow the limited partnership model for fund structuring – so the read across to retail fund structures is qualified.

For funds with 20-year plus time horizons, the frequency and scale of what were once statistically remote events, and the threat of the application in practice of hindsight is potentially sobering. Likely what is in the interests of neither investors nor managers is deterring investment in badly need infrastructure and technology because the expectations as to the degree of foresight required, and the testing of that foresight over such a long period becomes unworkable. At the same time, there will be occasions when investment decisions need to be capable of being held to account. The NESPF claim may help understand where the boundaries lie, and how the Courts will go about testing them.

Further updates to follow…

Chronology

• 2017 - Hermes Infra II fund launched /fund life 20 years
• 28 July 2017 - Date of PPM
• 1 June 2018 - Deed of Adherence – NESPF become LP
• Early 2019 - Manager starts considering investment in Ventus Portfolio
• 6 August 2019 - First investment
• 12 November 2019 - Further investment
• 11 March 2020 - WHO declares Covid-19 as a pandemic
• 21 July 2020 - Further investment
• 24 February 2022 - Invasion of Ukraine
• 5 August 2025 - Claim Form issued
• 30 September 2025 - Valuation date underpinning damages claim in Particulars of Claim
• 22 December 2025 - Particulars of Claim filed
• 5 January 2026 - Acknowledgment of Service indicating an intention to defend together with Federated Hermes Inc Form 8-K SEC filing
• 30 April 2026 - Defence filed
• 10 June 2026 - Reply filed