UK - The pension fund buyout market is yet to fulfil its potential after an unimpressive third quarter, according to Aon Consulting.
In its quarterly survey, Aon found a fall in the number of transactions and overall value of funds entering in to buyout agreements between July and end of September 2007.
Paul Belok, principal & actuary at Aon Consulting, said: “The third quarter of 2007 was a fascinating one for the insured buyout market. The levels of business actually placed were disappointing, which is perhaps surprising given the level of hype that has been created.”
Figures showed a drop from 75 actual transactions in Q2 to 60 in Q3.
Mark Wood, chief executive, Paternoster, which last week announced it would take on the £170m assets and liabilities of some Emap pension schemes, agreed the research was factually accurate, but warned figures could be misleading.
Wood commented: “By looking solely at past figures, you ignore all the signs about the future.”
He continued there would be around a further £2bn of transactions before the end of the year suggesting the market in 2007 would be between four and five times the size of the market in 2006.
Steven Dicker, senior consultant, Watson Wyatt, said he didn't believe the market was struggling: "Trying to extrapolate from the very small, insured buy-out deals in this survey doesn't really give a sense of what is going on in the market.
"The market may be developing slower than some would like but that doesn't mean struggling - it is a much more complex market than many people first thought, particularly if you are looking at the more innovative solutions that are being proposed for larger schemes."
The Aon survey also reported the value of quotes given to companies wanting to sell off their pension funds were much greater than the value of current deals.
The average deal value in Q3 was £4m, whereas the average quote stood at around £114m.
Belok at Aon asked whether these quotes could be converted into deals: “Of the schemes that have obtained buyout quotations during the quarter, it would only need about 5% to buy out in the next 12 months for the market to start showing some growth.”
Aon’s research also found 58 of the cases in Q3 had been full buyouts, flying in the face of industry claims companies were looking for more complex, bespoke options.
Wood commented on the different options available: “The sentiment remains that companies are looking for the same thing; derisking.”
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