Industry insiders claim that asset management M&G and hedge fund Davidson Kempner are vying to be the first companies to provide funds to expand Britain’s 1.4 trillion pound ($1.77 trillion) pension sector.
Investors contribute additional money to a pension plan under a “capital-backed journey plan” in exchange for any investment returns that surpass a predetermined threshold after a predetermined number of years.
Laptops 1000Although there has only been one such transaction to far, the market is anticipated to heat up as a substitute for bulk annuities, which entail the transfer of a pension plan to an insurer.
Derek Steeden, a director at PwC, stated, “A lot of private capital out there would like to deploy its capital in this market.”
The majority of Britain’s 5,000 defined benefit pension plans have deficits overall in the wake of the world financial crisis.
However, most can now afford a bulk annuity, which is thought to be the gold standard for protecting pension plans and removing liabilities from businesses’ balance sheets, because higher interest rates in recent years have left most in surplus.
Even though bulk annuities are now more reasonably priced, some firms are eager to keep managing their own pension plans, which is where investor funding comes in handy.
“Running schemes on could present an opportunity for members to receive higher benefits and companies to see a return of some of the billions of pounds of contributions they have sunk into UK pension schemes,” stated Simon Turner, partner at consultancy Mercer.
M&G announced their entry into the market. Steeden, one of the writers of a paper on capital-backed travel plans, Turner, and a third source with firsthand knowledge of the situation all claim that Davidson Kempner is also looking to provide such arrangements.
In 2020, the capital-backed deal was first introduced by the investment firm Aspinall Capital Partners. Michael O’Connor, chief investment officer of Aspinall, stated that there was “a lot of interest behind the scenes” and expressed confidence in closing transactions in 2025. He expressed “hopefulness” about closing another purchase this year.
