Monday, 11 February 2008

Pension trustees fear private equity takeover

This survey from Aon Consulting is interesting for two reasons. First, it is clear that trustees believe that being taken over by private equity can have a negative impact both on the treatment of the scheme and its members and the overall strength of the business:

Nearly three quarters of pension trustees (72 per cent) would be concerned if their scheme’s sponsoring employer were to be taken over by a private equity firm, according to new research released today by Aon Consulting, a leading pension, benefits and HR consulting firm.

Aon Consulting 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 PE as an investment opportunity.

Results showed that the prospect of being bought by a private equity firm raised fears with nearly three quarters (72 per cent) of trustees. This figure rose to almost 80 per cent of responses when the results were narrowed to trustees of schemes with a value in excess of £100million.

The main reasons given for such concern related to short-term funding concerns (around 30 per cent), followed by worries about a deterioration in the strength of the covenant (around 20 per cent) and concerns about potential lack of interest in the scheme’s members (20 per cent). Trustees were also concerned simply by a fear of the unknown (15 per cent).

But secondly it also demonstrates the way that trustees also apparently fail to make the links between their own investments in the asset class and the negative effects it can have:

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 (21 per cent) of trustees said that they have considered and implemented, or are currently considering, investment in PE. For schemes with a value over £100 million, where almost a third (31 per cent) say they are considering, or have already invested in PE.

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