The first risk-transfer transaction by a pension in a pooled liability-driven investment (LDI) vehicle has been carried out by a UK fund.
The Western United Group Pension Scheme has transferred £280 million of its assets and liabilities to Rothesay Life, adding to the £220 million already taken on by the specialist insurer in two previous transactions. The latest transaction took the form of a bulk annuity and the fund is now expected to wind up.
Immediately before this final deal was transacted, the pension had held its assets in an LDI transition fund run by F&C Investments. “This allowed the scheme to transition out of their pooled LDI holding whilst mitigating out of market risk and saving hundreds of thousands of pounds in transaction costs,” the asset manager said.
Additionally, the transition fund allowed the pension to deliver a pre-specified portfolio of bonds to the insurer, which was beneficial to the price stability of the buy-out.
Alex Soulsby, head of LDI at F&C Investments, said: “Transitions of this nature have ordinarily been the preserve of large segregated portfolios. The transition LDI fund allows pooled LDI clients to achieve the same benefits, overcoming one of the more significant hurdles to investing in LDI in the first place.”
The deal takes the total of assets and liabilities transferred this year towards record levels. Last month, consultants LCP said 2014 could see £10 billion de-risked by pensions, while Rothesay Life Managing Director Tom Pearce said his firm, which has carried out six of the 10 largest deals in the UK, continued “to see growing demand for full buyouts from corporates.”
Related content: LDI, the Second Best Derisking Strategy? & Who Pays the Most to Offload Risk?