The Financial Services Authority (FSA) has authorised Paternoster as a life assurance company. Paternoster has been awaiting FSA approval since its launch in April and is one of a new breed of specialist firms established to develop the final salary pension transfer market.
Earlier this year, Ed Truell, co-founder of Duke Street Capital, stepped back from his role there as chairman, taking on the title of partner and focusing on a new business line to be known as Duke Street Capital Structured Solutions, focusing on financial strategies, notably around long-term pension provision. Not much more has been said on the project although it’s likely that fund raising is well advanced, given that Truell will begin briefing the market on his project soon, according to advisers.
Mark Wood, ex-head of Prudential’s UK life assurance operations, is chief executive of Paternoster, which is on a £500m fund raising trail and will acquire defined benefit pension schemes from UK companies.
Wood said: “The FSA process has been extremely thorough and effective. Demand for final salary pension transfers is growing at a pace. We expect very few businesses to continue to have a defined benefit pension scheme on their balance sheets within the next five years. Even with the growing number of new entrants there may not be sufficient capital within the authorised insurance companies to satisfy demand.”
Individuals set to join Truell and Wood, according to a report titled “The Crisis in Defined Benefit Corporate Pension Liabilities: Current Solutions and Future Prospects“, include Warren Buffet, Isabel Hudson and Hugh Osmond, as well as Aviva, Aegon and numerous investment banks. These new players aim to make a profit by doing a better job than pension funds at managing the intersection between assets and liabilities.
Private equity firms, as well as every other company facing pension defined benefit fund shortfalls, will be watching this space with interest. According to a report in April from Grant Thornton Corporate Finance, which surveyed 100 mid-market private equity firms typically investing in deals between £3m and £200m in value, only 37% of those surveyed completed an investment with a company that had a defined benefit deficit. But in 2004, the same survey found that all respondents had invested in a company with a defined benefit deficit over the course of the year.