of a significant haircut. Or we start the disinvestment process earlier.


That is sometimes because there is no pressure, addressing the issue just gets delayed until you reach a certain funding level and then you are stuck with it because the timeline becomes problematic. Phelan: There is also a degree of challenging people along the way. You would not build up a massive allocation to illiquid assets, but even if you took a haircut, and you probably will, you could get a good return. We did it with one scheme where we recovered most of the money. But you have to make sure those who say it is difficult to get out of these things are not holding onto them because they are paid to. There might be some push to do it and there might be some push to not do it. There are so many competing tensions in this. Barron: You have to think about your endpoint when you are going in. A large scheme that bought out recently went into an illiquid asset, which had a complex tax structure because it gave them a slightly higher yield. They later found out that this was a significant barrier to any insurer taking the asset and impacted the sale price they could achieve. Thinking that through in advance is important. Perrella: You can manage illiquids if you have a strong sponsor who can loan you the money, you can disinvest over a period and repay the loan. That has happened in a number of transactions. Pickering: Having a 12-month period before your money is drawn down is helpful. I had a trustee board where there was such a waiting period. The asset manager had not called down any of the money during that period so we cancelled without penalty. Buy-in/buyout became nearer during those 12 months and the trustees were bright enough to know that it does not make sense anymore because the period is much shorter. So you may not have to pay an exit fee.


This market is not just about insurers. There are other options. What do schemes have to do to attract a consolidator? Cartwright: The consolidator market is an interesting, and hope- fully welcome, addition to the endgame options for pension schemes. We are yet to see the first deal, but hopefully that will not be far off. Many of the considerations are similar in that you need to pre- pare your asset strategy and benefit spec. There are additional conversations around whether you will pass the gateway test, or if you could ultimately get to insurance. It will be an easier conversation for schemes whose sponsor is weak.


Alan, you are the chair of trustees at Clara. What will it take to get you to go with a deal?


16 July–August 2022 portfolio institutional roundtable: Endgame investing


It is about streamlining the transaction as much as possible so it is appealing to


the insurers. Charlotte Quarmby, Aon


Pickering: Clara is trying to make sure that resources are not needlessly wasted. Not only does the regulator set a high bar for potential deals to clear, but Clara has a triage due diligence process up front so we do not waste money and neither do potential clients if the deal cannot be consummated. Clara is trying to be frugal with its assets because we would rather use our money to pay benefits than consultancy fees. There will be a high bar.


The other point is the due diligence an insurer would go through in terms of liability precision and the quality of the incumbent administrator. Although Clara has an administra- tor, during the transition it will be dependent on the efficiency of the incumbent administrator who knows that their time is limited. It is a case of running a tight ship. It is not my job to sell Clara, but I will tell the seeding trustees that if they decide to come with us their members will be treated like foster children. There are the softer and human aspects to these transfer arrangements. If you are transferring


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