LONDON, July 25, 2023 – WTW has launched a new group dedicated to supporting pension schemes managing illiquid assets in the run-up to buyout.
Drawing upon experts within WTW’s existing transactions and private markets businesses, the group takes advantage of the firm’s extensive experience in illiquid asset classes. This includes expertise in private equity, private credit, real estate and infrastructure, in combination with expertise in advising pension funds on all aspects of risk transfer transactions.
This follows an accelerated need for advice on the best route to achieve full scheme buy-in or buyout as wider events over the last twelve months have rapidly improved the funding ratios of many UK pension schemes – enabling the option of risk transfer for pension schemes sooner than was previously expected. On this newly accelerated timeframe, those pension schemes that are targeting buyout now face the question of achieving maximum liquidity in their investment portfolios much sooner than was previously planned, to enable a risk transfer transaction.
Traditionally, however, many illiquid asset classes such as real estate or private equity would not enable such a swift realisation of value before buyout.
Matching up the timeframes for illiquid asset disposal and risk transfer requires time and expertise for schemes to optimise the value achieved. However, with compressed timescales, it is also possible to achieve sufficient liquidity to enable a buyout transaction. Options include sales on secondary markets, negotiating the purchase of assets by the insurer involved in the risk transfer deal, deferring part of the premium payment to the insurer, or structuring a mutually beneficial purchase or loan agreement with the scheme sponsor.
The new group brings together the expertise of WTW’s Investments and Retirement businesses and will focus on delivering advice to pension schemes facing this new challenge.
Ben Leach, Head of Private Market Solutions in WTW’s Investments business and Head of the Specialist Group, comments: “Rapidly improving funding ratios have been a positive surprise for many pension schemes and have brought forward the timeframe to buyout for many schemes with major holdings in illiquid assets such as property and private equity.
“Rapidly improving funding ratios have…brought forward the timeframe to buyout for many schemes with major holdings in illiquid assets, such as property and private equity.”
Ben Leach | WTW
“Exploring the options requires a deep understanding both of the pension scheme itself and the specialist markets in question. For example, we have seen a 50% increase in first time sellers on the private equity secondary markets in the last year, which can be a compelling option in certain circumstances as that market has matured over the past few years. Similarly, for larger schemes, some insurers can accommodate the transfer of illiquid assets in certain circumstances. But each pension scheme has its own set of unique characteristics that require tailored advice that can reach across both the secondary market and the insurer landscape in order to get the best outcome.”
Shelly Beard, Managing Director in WTW’s Transactions Team and member of the Group added: “How to best deal with illiquid holdings is now a common dilemma in transactions that we are advising on, and it’s incredibly important that this is thought about holistically to get the best outcome. Whilst insurers continue to innovate to provide solutions for schemes with illiquid assets, this will not suit all schemes and investment types and may not provide the best value. This is why understanding the options available through secondary markets is so important.”
WTW’s Investments business is focused on creating financial value for institutional investors through its expertise in risk assessment, strategic asset allocation, fiduciary management and investment manager selection. It has over 900 colleagues worldwide, more than 1,000 investment clients globally, assets under advisory of over US$4.7 trillion and US$187 billion of assets under management.
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