Paternoster leads bulk purchase buyouts

Paternoster, the London-based bulk purchase vehicle, is leading the surge in voluntary bulk buyouts of corporates’ pension schemes, a year on from the launch of these vehicles.

The bulk purchase vehicle has signed 21 deals since its inception in June last year, and seven of those have been in the last quarter, giving a total of assets transferred of £260 million as at March 31.

Paternoster has written business on insolvent compulsory buyouts, as well as the more substantial solvent voluntary buyouts, which these vehicles were originally set up to target. Voluntary buyouts take pension liabilities off companies’ balance sheets and manage the risks, while maintaining the schemes’ obligations. Two-thirds of the deals were voluntary buyouts, mainly of small and medium-sized companies’ pension schemes, including those of UK and European manufacturing companies, with an average deal size of £25 million of assets transferred.

Mark Wood, London-based chief executive of Paternoster, said he was expecting a further five transactions to close by September, adding a further £2.5 billion of assets. “This is close to the total value of transactions in 2006 of £2.2 billion, [as calculated by the Association of British Insurers] showing the rapid growth of the sector,” he said.

Other bulk buyout vehicles are lagging behind, with little business done since their creation last summer. Isabel Hudson, chief executive of London-based Synesis Life, said there was significant interest in the market and a number of large transactions in the pipeline. She said she was expecting more than one deal between now and end of the year, though she conceded that progress had been slow.

However, this market is tipped to grow substantially, according to Arlington, Virginia-based actuarial consultancy Watson Wyatt, which reported last month that one in four UK companies is looking to transfer pension liabilities to insurance companies within the next five years.

Serkan Bektas, head of European pension solutions structuring at Barclays Capital, also expects further growth of the market in terms of number of participants, and the capital deployed to it. He said: “As pension fund evaluation assumptions become more conservative, the premiums to effect these transactions decline, so this market is likely to be a growth market in the long term. The cost differential between on-balance sheet evaluation of pension scheme and the cost of externalising might decline, and that makes the buyout route more viable.”