Editorial
ENDGAME INVESTING
CONTENTS
P4 : Endgame investing in figures The market in six numbers
In the early days of my career as an investment journalist, when I was slimmer and far less cynical, I arranged to meet an analyst for lunch. I was hoping that he would share his secrets of how to assess a com- pany with me.
I knew what the components on a balance sheet were, but I wanted to know what insiders look for, how they read between the lines to find the true picture of a company’s financial health.
While we were discussing how much debt a company actually has, he said something that I did not expect: “Don’t forget the defined bene- fit pension scheme.”
“If there is a £100m shortfall in the fund, the company is responsible for it,” he added. “You should see it as a debt so it will, therefore, affect your valuation of the business.”
It is unlikely that a company would have to pay all its pension liabilities at once, but these schemes are maturing. They are mostly closed to new members and rely on investment returns to fund their obligations. Yet with more than half of DB schemes cashflow negative (the level of which is expected to rise) it is difficult to meet these obligations for a population that is living longer. With that in mind, more and more corporates are working to transfer the responsibility for paying the pension benefits of their workers to someone else. That someone else is typically an insurer through a buyout or buy-in. Indeed, almost £30bn of pension scheme liabilities were transferred to insurers last year and I have read various projections on the size of this year’s market with one believing it could be worth as much as £60bn. There are other options. They include turning to a consolidator or opting for self-sufficiency if trustees are confident that the scheme could continue to fund their members’ pensions. With DB schemes maturing and there being a growing number of options to consider, portfolio institutional decided to take a closer look at how schemes are preparing for their endgame. We hope this supplement will be a welcome addition to your research.
Mark Dunne Editor
m.dunne@portfolio-institutional.co.uk
P5: The participants An introduction to the professionals taking part in our roundtable discussion
P6-19: The discussion
A transcript of our debate on the options for endgame and how trustees should be preparing for the journey
P20-21: Planning for buyout Aon’s Lucy Barron explains how schemes should optimise their position with insurers to manage the risks that emerge as they close in on their endgame objective.
P22-25: Feature - Targeting the endgame Defined benefit schemes are in surplus at a time of market uncertainty, so how will this impact their final journey?
July–August 2022 portfolio institutional roundtable: Endgame investing
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