Thursday, 2 October 2008

Private equity and pension funds, again

I must be thick, but this story doesn't seem to make much sense to me.

UK – Claims that private equity firms are driving pension funds into the control of the Pension Protection Fund (PPF) have been challenged by new research.

According to the research conducted by Close Brothers, companies backed by private equity firms accounted for 29% of the pension schemes that had been forced to end to the PPF. Of the remaining companies with schemes in the PPF, 58% were privately owned and 13% were from publicly listed companies.

Err... so almost a third of the pension funds in the PPF are those attached to private equity owned companies. Surely we need to know what private equity ownership accounts for as a proportion of companies as a whole before we can say that these figures show there isn't a correlation between PE ownership and failing pension schemes. And I'm sure it isn't a third!

A couple of caveats. Firstly I reckon it's likely that the set of schemes in the PPF is skewed towards those run by SMEs - hence the large proportion of privately-owned companies' schemes in there. And some PE (the venture end) both focuses on smaller companies, and is high risk. Secondly, PE folks themselves would argue (with some justification) that in many cases the presence of PE (via a MBIs at least) indicates a company in trouble, and many of them won't make it. So perhaps we shouldn't be too surprised to see so many PE-backed companies' funds in there.

But still, I just don't see how the raw stats back the argument. Unfortunately I can't find the original research on the Close Bros site to see how it stacks up.

PS. A reminder of the GMB report (PDF) detailing PE's links to insolvent pension funds.

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