Pension buyout capital floods in

Two groups of ex-employees from annuities giant Prudential are leading the pack to take a slice of the potential £1,000 billion UK corporate buyout market. Prompted by the increasing demands of the UK's Pension Protection Fund (PPF) and Pensions Regulator, along with demographic change, many companies are looking for a way out of their defined benefit pension liabilities.

Mark Wood, the former head of Prudential's UK operations, has secured £500 million of financing for his bulk purchase annuity vehicle Paternoster from a group of backers led by Deutsche Bank and Eton Park International. He says he will aim for a steady volume of small and medium-sized pension scheme buyouts

With the first hurdle of financing successfully overcome, Paternoster is now looking to get approval from the UK's Financial Services Authority (FSA) for a licence to operate as an insurance company. This move is expected by mid-2006 and is not likely to be hampered by the appointment last month of the former head of the FSA, Sir Howard Davies to the board of Paternoster.

Meanwhile, three of Wood's former Prudential colleagues, led by Isabel Hudson have backing for their pension buyout venture, Synesis Life. The capital backing, the amount of which has not been disclosed, will be provided by JP Morgan, the Royal Bank of Scotland and Warburg Pincus as part of a strategy to target up to £10 billion of liabilities over the medium term.

Unlike Paternoster, Synesis will focus on the larger pension schemes. According to Hudson, the company, which has applied for an FSA licence, will outsource its actuarial function to consulting firm Watson Wyatt, appointing Nick Dumbreck as chief actuary. Watson Wyatt is also a leading actuarial and investment consultant for UK pension schemes.

Another player in the market is an - as yet unnamed - company set-up by Edmund Truell, the founder of Duke Street Capital has apparently secured £400 million of capital and has appointed Lord Rothschild and the former head of the Inland Revenue, Sir Nicholas Montagu, as non-executive directors.

It is not only start-up companies that are looking at the UK's corporate buyout market - earlier this year insurance giant Aviva said it was considering entering the sector.

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