Aon Consulting has surveyed over 250 trustees of defined benefit (DB) schemes on how they felt about the prospect of a takeover by a private equity private equity firm, as well as whether they would consider private equity (PE) as an investment opportunity.
Results of the survey have showed that the prospect of being bought by a private equity firm raised fears with nearly three quarters of trustees. This figure rose to almost 80% of responses when the results were narrowed to trustees of schemes with a value in excess of GBP100 million.
The main reasons given for such concern related to short-term funding concerns, followed by worries about a deterioration in the strength of the covenant around 20% and concerns about potential lack of interest in the scheme’s members with 20%. 15% of trustees were also concerned simply by a fear of the unknown.
However, in contrast to trustees’ wariness of private equity acquisition, their attitude shifts positively when it comes to investing in privately owned companies as a means of diversification. Around a fifth of trustees said that they have considered and implemented, or are currently considering, investment in PE. For schemes with a value over GBP100 million, where almost a third say they are considering, or have already invested in PE.
The survey results indicate that if private equity firms are to bid successfully for companies with DB schemes of significant size, then one of the key battles for such firms will be the need to gain the backing of trustees. In order to do this they must demonstrate commitment towards pension schemes and understanding of trustee priorities.
Paul McGlone, principal and senior actuary at Aon Consulting, said: The survey shows that the private equity industry still has challenges to face to win the backing of trustees, who are not just concerned by its asset stripping reputation or fears over scheme funding, but also by the attitude to scheme members. Some trustees’ fears are very specific and well founded, such as the concern that gearing could move the scheme down the order of creditors. However other concerns are simply a fear of the unknown.
