You might think you are heading for self- sufficiency, but you could be at buyout or buy-in or another option much faster than you


think. Wayne Phelan,


Punter Southall Governance Services


plans gain traction so we have more options to secure mem- bers benefits. Cusack: I will be interested in the first transactions. From a trustee’s point of view, the covenant aspect becomes crucial. Our guidance is all about the covenant.


I get the distressed aspect. There are many overseas sponsors walking away from the UK. For a run-of-the-mill scheme, the compulsive argument from a covenant perspective is not there, so where does the interest come from? Cartwright: I have seen interest from sponsors when their rela- tionship with the trustees has broken down and they want to exit.


Sponsors have a greater focus on efficient management of cap- ital on their balance sheet. Is there a way to remove that liabil- ity or are the accounting profits coming through? Sponsors are looking at that, they see it as a new idea.


A number have moved on, which is part of the triage we do before it gets to a consolidator because no one wants to waste their time.


There is a demand to secure members benefits in the most capital efficient way. New ideas will gain interest and traction. Cusack: I agree that having alternatives is helpful. If insurance is not the only route, then you do not have to pay a premium to buyout.


It is good to have competitive tension provided the options are suitable. Some options will appeal in some situations more than others.


18 July–August 2022 portfolio institutional roundtable: Endgame investing


How are schemes opting for self-sufficiency preparing their portfolios? Phelan: It depends where you are on being hedged. Most schemes are well hedged, so their journey is largely done. But there are some who are a way off completing that journey, so self-sufficiency is still a landing post. It is back to speed and nimbleness. You might think you are heading for self-sufficiency, but you could be at buyout or buy- in or another option much faster than you think. There is a lot to play for in terms of what your investment strategy does for you.


Cartwright: Self-sufficiency is interesting from an investment perspective. Once you get down to low required returns – gilts plus 1% or below – there are many ways you can achieve that. It comes down to philosophy: do you like credit or equity risk? Do you believe in diversification or simplicity and lower fees? When we need high returns, equities or private equity can get us there. When we need low returns, there are more options, which make decisions harder but also more fun in working out what is important for the investor. Pickering: I have been a trustee for 41 years. What makes me feel young is people talking about captives. When I first started, captives were used in a range of financial planning. Now they are being discussed as a possibility to give employers the best of all worlds, providing that they keep their books open. Some argue that a captive is the nearest an employer is going to get to a free lunch.


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