February 5, 2008 / 9:51 AM / 12 years ago

Pension trustees fear private equity

LONDON (Reuters) - Nearly three-quarters of trustees of company final-salary pension schemes would be concerned if their firms were taken over by a private equity firm, a survey by pensions advisory firm Aon Consulting said on Tuesday.

In the poll of more than 250 trustees 72 percent expressed concern at the prospect of being acquired by a buyout firm. This figure rose to nearly 80 percent of trustees of larger schemes, with a value in excess of 100 million pounds.

The main reason given by trustees was anxiety over short-term funding as a result of a takeover, followed by a deterioration in the strength of the covenant, by which the employer agrees to stand behind the scheme and finance it.

Trustees also expressed concern the private equity firm would not be interested in the scheme’s members.

Private equity firms looking to take over companies with large pension schemes would need to win the trust and backing of pension trustees if they were to succeed, Aon said.

Demands by the pension trustees of Sainsbury for a major cash injection into their scheme helped derail two takeover attempts for the grocery firm, while the purchase of telecoms firm Telent by Pension Corporation, run by financier Edmund Truell, was nearly scuppered by pension trustee concerns.

“The survey shows that the private equity industry still has challenges to face to win the backing of trustees, who are not just concerned by its asset stripping reputation or fears over scheme funding, but also by the attitude to scheme members,” said Paul McGlone, a principal at Aon Consulting.

But 21 percent of survey respondents said they had invested or were considering investing some of their funds’ assets in the private equity sector.

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