It marks the arrival of Pension SuperFund in the retail pension market.
The Cash Consideration values the entire issued and to be issued ordinary share capital of STM at approximately £35.6 million and delivers 60 pence in cash per share, with a further 7p payable conditionally and at a later date.
Why is Pension SuperFund buying STM?
The following statement is made by the Pension SuperFund this morning
The mission of Pension SuperFund Capital is to provide a complete solution to pension savers and members. The board of Pension SuperFund Capital has stated that it intends for Pension SuperFund Capital to be at the heart of consolidation and pension risk transfer, building on its leadership team’s success inter alia at Pension Insurance Corporation, Hannover Re, and the London Pension Fund Authority.
Worldwide, pension savers and sponsoring employers face intractable issues managing pensions to provide for an adequately funded retirement. In the UK, Chancellor Jeremy Hunt’s Mansion House Speech on 10 July 2023 laid out a new paradigm for pensions and long-term investing in the UK. Defined contribution funds are not generating the returns required for savers to support them in retirement and defined benefit schemes are in accounting surplus, but not generating sufficient returns, thus requiring cash injections from industry, as opposed to investing in growth to top them up.
The reforms (the “Mansion House Reforms“) are focused on providing good value outcomes for investors and to combat the long drift into Liability Driven Investing which has seen pension allocation to UK equity and private companies decline to very low levels.
Personal pensioners and small funds have high administrative costs relative to assets under management and are particularly susceptible to the problems of low liquidity investments, so the reforms are also aimed at driving pension fund consolidation and encouraging collective funds. This is designed to bring down costs, but also enable portfolio balancing with higher growth investments, especially accessing private markets such as infrastructure.
The key elements of the Mansion House Reforms are:
· shift in regulatory emphasis towards value for money, long-term investment returns as opposed to simply focusing on costs;
· pension funds to consolidate (both defined contribution and defined benefit) and establish superfunds and collective investment funds in order to bring down costs while enabling investments in higher growth investments, including illiquid investments without creating liquidity traps for smaller funds; and
· pension funds to allocate at least 5% of funds to unlisted growth companies (£50bn of new capital allocation to growth companies in the UK, supported by 2/3rds of defined contribution mastertrust funds already).
Pension Superfund Capital intends to be at the forefront of driving this change in the UK pension market, aiming to create better outcomes for pensioners; and freeing employers from the burden of pension liabilities.
With deep and wide-ranging experience in pensions, Pension SuperFund Capital has access to significant lines of capital and assets, with which to help provide a safe and secure home to pensioners and pension savers.
The STM Group business lines are complementary to Pension SuperFund Capital’s businesses. However, Bidco and Pension SuperFund Capital believes that STM businesses lack sufficient scale to enable investors to access the broadest range of portfolios, including less liquid growth assets. In addition, they are running on legacy technology systems which, if optimised, have the potential to increase cost efficiency and improve investor outcomes.
STM’s operations in the UK, Malta, Gibraltar, Spain and Australia provide Pension SuperFund Capital with a broad platform for providing customers with products and services. Pension SuperFund Capital brings strong regulatory relationships and the capital required to make the required investments to maintain and improve those regulatory relationships as the business grows in breadth of product and scale of operations.
It is the belief of Bidco and Pension SuperFund Capital that a combined business with STM’s current customers and assets and Pension SuperFund Capital’s technology and access to capital, would create a strong platform to consolidate defined contribution and defined benefit pensions to provide better outcomes for investors.