past two years, it has been a bit of both. Sometimes it has been a distressed situa- tion where the sponsor has gone bank- rupt and a consolidator is an alternative option. I have also seen sponsors lead interest in the project because they see it as a cheaper way to get liabilities off their balance sheet.


Sponsors also like to hear new ideas. Given that Clara is the only consolidator to receive regulatory approval and is yet to do a deal, people are watching and could be more interested once the first deal is done.


Planning and engagement are needed to understand what you are trying to achieve. We had a client last year in the capital- backed journey plan space. When we went through the detail to get it right, we realised that they were not far from full insurance, so we went down that route instead. Perrella: Capital-backed journey plans are not difficult for trustees to assess. Essen- tially, what you are looking at is securing a yield for an acceptable level of risk. If you could secure the same yield for less risk elsewhere then go down that route. If you go to Clara you need to look at outcome by member. And the advisory process is more complex.


your members to an insurer the seeding trustees want to know that the foster parents will do a good job. Cusack: Mark, you posed the question, what should schemes do to be attractive to consolidators? Surely, you should have asked, what should consolidators do to be attractive to schemes?


You are right about that, Melanie. Pickering: It is not in anyone’s interest for the pensions indus- try to waste money on deals that are never going to be consum- mated. Clara and the other consolidators should decide early in the process if a deal has a fair chance of being consummated. You are wasting the sponsor and trustees’ money if a consolida- tor spends 12 months talking to you and the deal fails. Some intensive triage at the beginning could avoid all that heartache and expense. It takes two to tango. Cusack: Who drives the conversation? Is it the sponsor who wants the trustees to pursue going into Clara, for example? Cartwright: On the occasions we have looked at this over the


Myerson: I am surprised to hear that. There is a difference in covenant strength. If you take a capital-backed journey plan you need to have a stronger covenant so you can sweat the assets. Perrella: I understand that, but I was talking from an invest- ment perspective, subject to due diligence on the backers. Cartwright: The capital-backed journey plans do not want to transact with weak sponsors because they do not want to become a consolidator. There is a little regulatory arbitrage which the regulator will look at but the capital-backed journey plans have spent time proving they are not a fiduciary manager or consolidator. Conceptually, the consolidators are easier to understand. When you look under the bonnet of a lot of capital-backed journey plans there is more to understand than you are guaranteeing yourself extra yield. What are you giving up in return for that? But they are a welcomed addition to the pensions space and I would like to see the consolidators and capital-backed journey


July–August 2022 portfolio institutional roundtable: Endgame investing 17


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