The 300,000 Pensioners getting paid each month by Pension Insurance Corporation, may not be best pleased to read in their FT (or on this blog) that their paymasters in 2024 are likely to be “Barbarians at the Gate”.
Apollo, Carlyle and KKR are bidding to take ownership of PIC which is a privately owned specialist buy-out specialist. It is 49.5 per cent owned by Reinet Investments, a vehicle backed by South African billionaire Johann Rupert, and includes CVC Capital Partners among its shareholders. Apollo’s interest in PIC was first reported by Sky News.
It was founded by Edi Truell, the financier who has recently turned his attention to keeping pension schemes running on, using capital backed journey plans. Ironically , his idea for a pension superfund , would have provided employers and trustees with a way to offer 100% of the security of a buy-out with a potential share of any surplus created by Truell’s investment prowess.
I say ironically , because the one thing you do not expect from the likes of KKR, Carlyle and Apollo is the leakage of any value to their annuitants.
And if investors are wooed by the thought that insurance companies do not go bust, consider this (from the FT)
In the US, almost a 10th — $850bn — of the life insurance market is owned or managed in partnership with private capital groups, according to the IMF.
Such insurers tend to hold a higher proportion of illiquid assets, and the fund has urged national regulators to consider the risks to the wider financial sector. Scrutiny of the buying spree is rising.
Eurovita, an Italian life insurer owned by a fund operated by Cinven, the British private equity firm, went into special administration this year after the owner did not provide the level of capital injection requested by the regulator.
Is buy-out really the gold-standard option?
It doesn’t seem to be at either the Treasury and DWP.
As mentioned in previous blogs, the Government has written to tell the CEOs of The Pensions Regulator and Financial Conduct Authority to
“encourage alternatives to derisking and buyout”.
Jeremy Hunt, the Chancellor of the Exchequer and Mel Stride, Secretary of State for Work and Pensions, write in their letters that:
- We collectively believe there is an opportunity for savers to get better outcomes from their pension arrangements. The time to take action to improve outcomes is now.
- Encouraging alternatives to DB de-risking and buyout, where schemes are well-funded with a strong employer covenant – making their assets work harder and enabling continued investment in a broad range of assets, through clearer funding standards in Regulations, a Code of practice and guidance, and making it easier to share investment returns between sponsors and scheme members
- This is a long-term agenda and will need all parts of the pensions delivery and regulatory system to operate in alignment with this vision.
Commenting on the Autumn Statement and related letters, McGrath said “
’Derisk and get rid asap’ now runs against public policy for strong DB scheme sponsors. ‘Run On 4 Good’ replaces the endgame.”
Perhaps the enthusiasm of Apollo,. KKR and Carlyle would be tempered somewhat, if they considered the mood-swing that is occurring amongst trustees and sponsors.
Postscript ; Consultancy corner
If their due-diligence extends as far as considering the likelihood of actuaries shoehorning pension schemes into buy-out, they might do worse than read McGrath’s comments on TAS 3000 (2.0), the updated actuarial standards on advice on this subject.
How many Carats in the Pension Gold Standard?
Even the actuaries are getting nervous.