Private equity and credit firms have elbowed their way into everything from real estate to corporate lending. Now they're cracking open Britain's growing pension risk transfer market.
A partner of U.S. buyout giant TPG and Disruptive Capital Finance, owned by the Truell family office, are backing so-called superfunds that are poised to enter the business of taking over costly pension funds from companies struggling to keep them going. Insurers, which dominate the market, are expected to do more than £30 billion ($38.7 billion) of transfer deals this year, according to consultants Lane Clark & Peacock.
Investors desperate for yield in the world of negative interest rates are increasingly turning to private equity firms in search of returns, which has fueled the private equity industry's expansion beyond the leveraged buyout deals that remain their stock in trade. In the U.K., superfunds are awaiting approval of their debut deals from a regulator that's pushing for consolidation.
U.K. companies have spent the last few decades trying to rein in pension costs, which have soared as employees live longer, regulation tightens and returns on traditional investments such as bonds decline. This applies particularly to direct-benefit programs that promise employees regular payments or a lump-sum payoff when they retire. While few firms offer these plans any longer, they have to shoulder the cost as long as existing pension obligations remain on their books.