As more UK schemes of all sizes move to buyout or other insurance-based approaches for securing members’ benefits, it has become increasingly apparent that preparatory work on schemes’ assets is vital for getting the best results.
Lucy Barron, investment partner in Aon’s risk settlement practice in the UK, said: “The importance of preparation by schemes before a risk settlement project has always been clear – but it can’t be emphasised enough. That’s not just in the interests of efficiency but ultimately in providing the best possible solution for members. Schemes should always have a clear plan when approaching the market but that especially applies in relation to scheme assets. If you minimise time spent on a deal and any slippage in the timings, there’s less chance for market events and movements to knock a project off-course.”
Aon has acted as investment adviser on the three largest full scheme transactions so far in the UK’s pension scheme risk settlement market – RSA, Boots and Telent – schemes worth over £15 billion in total. All of these had complex illiquid and legacy assets to manage down in order that the transaction could take place - something frequently not required for partial scheme transactions.
Lucy Barron said: “Aon’s work on these major deals, as well as on numerous smaller ones, has been based on the principle of making sure that assets are made ready well before the actual transaction. For example, in just the last year, the firm has been involved in the sale of over £2 billion in illiquid investments for schemes moving to a transaction. We have used specialist brokers to sell in the market, worked with managers to design sell-down programmes for direct property, as well as finding innovative solutions with insurers. In many of these transactions, but particularly the most complex, it’s about seeing the art of the possible with insurers and establishing the best way to manage complex risk to minimise cost, market risk and ultimately deal execution risk. Getting schemes’ assets into shape is one of the key elements in a transaction’s ultimate success.”
Ross Mitchell, investment partner in Aon’s risk settlement practice in the UK, said: "More broadly, investment planning to support a settlement project cuts across so many areas. That crucially includes in the lead-up to a deal, where aligning assets to insurer pricing models helps reduce volatility. It then takes in the process of selecting an insurer, where negotiating bespoke price-lock portfolios can be a significant differentiating factor, and then includes the execution and transition process, where the potential for cost saving can be significant. Strong insurer engagement is an essential ingredient to obtaining the best outcomes. In such a busy market, it’s vital to have a clear strategy and governance as insurers are increasingly prioritising schemes which are the best prepared.”
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