Perrella: I would add that there are old-style fiduciary arrange- ments for some smaller schemes, particularly where when you try to disinvest you find all sorts of issues with timing and costs. Trustees and sponsors need to be aware of the disinvestment timeline and process. Sometimes people do not fully under- stand it, which can stop you from moving quickly when you see that it is the right thing to do. Cartwright: Going back to project planning, there are sensible steps you can take such as letting your custodian know you are planning a transaction or keeping the signatories up to date. That preparation does not sound exciting but it is important. Barron: For years the focus has been on preparing benefit specs in advance, thinking about the data, but increasingly trustees are thinking about the assets before getting anywhere near a transition, looking for roadblocks. It often comes down to man- aging illiquidity, while complex LDI arrangements can be another roadblock for some schemes. From an assets perspective, we help schemes make sure they have a flexible toolkit to match insurer pricing as they get closer to entering the market, especially if affordability is tight. That reduces costs and risks, but also gets an insurer on board. They do not want to spend time looking at your scheme only to find that buyout becomes unaffordable because you are holding assets you cannot sell or which poorly match insurer pricing.
Hartree: One of the first questions we will be asked when taking a scheme to market is about the assets and what steps have been taken to de-risk. When insurers are busy they do not want to invest time in a transaction that could fall away at the last minute. You must demonstrate that you are prepared, not just on the data and the benefits, but on the assets, too. Perrella: There is a different dimension to that. Insurers’ appe- tites vary depending on scheme size, duration and profile, so you have to understand what segment of the market a scheme belongs to. You need experienced advisers across the whole piece.
Pickering: A trustee-specific issue is post transaction protection. If the trustees do not realise until the eleventh hour that once the scheme has no money they will be depending on insurance or internal indemnities to guarantee that they will sleep at night for the rest of their lives because ambulance chasing law- yers will not come after them claiming the benefit payments are wrong. You do not want to double bank external insurance and inter- nal indemnities, but it is important to send trustees into retire- ment with peace of mind. Myerson: A conversation I have with my schemes is should we go for residual risk cover or just do the investigative work and take comfort from having done the due diligence and solved the issues that came up. So it’s unlikely that anything else will
There is a
misunderstanding that if your funding position is good you can buyout. You can’t if you do not
have the right data. Melanie Cusack, PTL Governance
July–August 2022 portfolio institutional roundtable: Endgame investing
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