The FT report on the FT through Lee Harris and Martin Arnold.
Demand for Penson Risk Transfer (PRT) deals is expected to reach £500bn by 2033, according to estimates from consultancy LCP. Insurers specialising in the arrangements have, meanwhile, become prime takeover targets for alternative asset managers, since they provide a captive customer for asset management services.
The Rolls-Royce agreement comes weeks after Athora, an insurer backed by US private capital group Apollo, announced that it would acquire PIC in a £5.7bn deal.
Mitul Magudia, chief origination officer at PIC, said that after the acquisition, which remains subject to regulatory approval, PIC “expects to have strong appetite to complete many more” transactions of this nature.
Regulators are starting to worry about the growing shift of pension assets to private equity owners.
The Bank of England warned recently that such groups could be more vulnerable to a credit downturn because they are leveraged and typically own a larger proportion of illiquid assets.
However, Liz Airey, chair of trustees at the Rolls-Royce UK Pension Fund, said its members would be “in safe hands” at PIC, which had insured 400,000 other pension scheme members in a portfolio worth £50.9bn at the end of last year.
Canadian asset manager Brookfield, which already had a presence in the UK PRT market, recently announced plans to pay a 75 per cent premium to buy Just Group, another PRT specialist, which has focused on smaller transactions.
We have seen Rachel Reeves our Chancellor welcome the purchase of Just and PIC and with it control over the pension funds it has bought into and will eventually buy-out,
I have reservation about the financing of the deals that see pension funds put in the hands of US private equity. I see congratulatory posts on social media by the various advisers , the executive and from the insurer, I can see why they are happy, they clearly have done their job well, but was it a job that Rolls Royce really needed doing? Is it a job to be congratulated on by the pensions industry. I think not.
Rolls Royce is an engineering company in good shape, quoted on the FTSE in London’s Paternoster Square. I do not understand why Britain is not wanting its pension schemes to do what their sponsors are doing and compete the world over. We are instead happy to let them be owned from a distance to the benefit of American capital managers.
That American politicians are happy to promote itself to its people through “deals” and resulting “tariffs“, we sit lamely by and applaud the dismantling of our once great pension system so that American capitalism can prosper.
This does not seem right and I hope that we start to see those in power in Westminster wake up to the folly of our feeble behaviour. We have more strong companies whose pension schemes were created at huge expense to the sponsor that are likely to be taken over by overseas private equity using insurance and the annuity buy-in/out route.
I would like to see the Treasury and DWP acting as one in promoting the pension system that we built over 75 years rather than giving it away in little more than a decade.
Oh well, more (ie many many £billions) of our pension savings off to Bermuda. I’m sure it will be fine….
It’s a puzzle as to why the Chancellor endorses Brookfield.
It was a puzzle when Mark Cairney while chair of Brookfield endorsed Reeves.
It doesn’t sound Rachel Reeves’ authentic voice endorsing Brookfield , thanks for that information about Mark Carney’s CV.
What was in it for the members?
We need more member-led arrangements and outcomes.
Even if run on under the TPR’s super low risk low dependency basis, the expected surplus on a £4.3bn scheme would be in the region of £500m – £1bn, cautiously. Buy-outs are ridiculously overfunded, creating a day-one reserve for the expected profit – of course they are, the insurers set the rules. Good timing for Brookfield in scooping that up.
But what is absent in all of these announcements and takeovers etc is anything for the MEMBERS?
That +£500m surplus would have been better deployed to provide their pensioners with some better inflation protections that they would then be spending in the UK, with the resultant multiplier effects (goodness knows they and our economy needs it), not instead with pensions being subject to the caps or fixed amounts imposed by the insurers, and the profit filtered away offshore.
Thank you – I quite agree with the points you make.
A buy in by an overseas private quity fund looks like a big risk for the Sponsor, Rolls Royce. The sequitur of a buy out by a private equity funddoes not obviously conform to the concept of an insured risk.
And the balance of payments flows?
I can’t comment on this case, but sadly the way that it appears to work is that if the idea is sold to the sponsor, there is little that the chair can do apart from make the best of a bad deal or they will be replaced by a chair who is more agreeable (and there are lots of them out there). And it is difficult for a chair to mount a challenge to given actuarial and advisory wisdom, especially if they know less than their advisors. I remember a former actuary to one of the largest schemes choking on his sandwich when I suggested that an insurer is just another leveraged CDO. “They are not!” he said, with bread flying in all directions, “they are regulated by the PRA, they have huge amounts of capital and no insurer has ever failed.” Sadly he was unable to detail what “huge” meant….
L&G half year accounts show 1% capital provided by insurer for each buy in. All of the risk is covered by over funded schemes …?
Surely Chairs are obliged to consider the TAS300 assessment?
The maths will tell a different story, and those that don’t consider an appropriate TAS300 assessment on such an existential decision can expect class actions at some stage if they have not fully considered and represented the members interest?