Buyout capital tight for new entrants
UK - Capital requirements for pension fund buyout providers could force some players off the field as major investors look for better returns on their limited liquid outlay.
Recent speculation that Lehman Brothers would be the next investment bank to enter the ring has sparked debate over whether now is a good time to launch into the market.
David Clinton, managing director at buyout company Lucida, said: "I was a little surprised to see Lehman Brothers connected to a buyout deal at this time."
Clinton said current economic conditions and the drying up of capital would mean a rebalance in the market even through there was growing appetite and opportunity to carry out deals.
"Some investors have been remarkably patient so far, but unless they begin to see a return on capital, this patience may be running thin and consolidation of companies may soon be on the horizon," he added.
Charlie Finch, partner, Lane Clark and Peacock, said the landscape had changed over the past year with capital no longer being instantly available in all quarters.
He added it was not enough for buyout companies just to be able to access capital; their investors expected a higher yield than what they received from less risky options.
He agreed consolidation was a possibility with companies even considering syndicated deals to share the risk and capital requirements with another insurer.
Lehman Brothers would not confirm it was actively seeking to enter the market in a move which would mirror investment giant Goldman Sachs' vehicle Rothesay Life.
However, a spokeman said it was active in helping clients look at different ways of managing pension risks and entirely removing risk from clients' balance sheets was one of the firm's options.
In February, Rothesay Life agreed to buy out the £700m (US$1389m) Rank Group Pension Scheme, in the biggest deal of its kind at the time. The deal was the first for the vehicle, which was set up by the investment bank in July 2007.
Other investment banks have entered the space indirectly by providing resources to buyout companies, such as Deutsche Bank through Paternoster and JPMorgan through Synesis Life.
Mark Wood, chief executive, Paternoster said he was upbeat about the challenge of another competitor: "The move by Lehman brings more capital to the support of pension schemes and is further endorsement of the rate at which the market for defined benefit risk transfer is growing.
David Clinton, managing director at buyout company Lucida, said: "I was a little surprised to see Lehman Brothers connected to a buyout deal at this time."
Clinton said current economic conditions and the drying up of capital would mean a rebalance in the market even through there was growing appetite and opportunity to carry out deals.
"Some investors have been remarkably patient so far, but unless they begin to see a return on capital, this patience may be running thin and consolidation of companies may soon be on the horizon," he added.
Charlie Finch, partner, Lane Clark and Peacock, said the landscape had changed over the past year with capital no longer being instantly available in all quarters.
He added it was not enough for buyout companies just to be able to access capital; their investors expected a higher yield than what they received from less risky options.
He agreed consolidation was a possibility with companies even considering syndicated deals to share the risk and capital requirements with another insurer.
Lehman Brothers would not confirm it was actively seeking to enter the market in a move which would mirror investment giant Goldman Sachs' vehicle Rothesay Life.
However, a spokeman said it was active in helping clients look at different ways of managing pension risks and entirely removing risk from clients' balance sheets was one of the firm's options.
In February, Rothesay Life agreed to buy out the £700m (US$1389m) Rank Group Pension Scheme, in the biggest deal of its kind at the time. The deal was the first for the vehicle, which was set up by the investment bank in July 2007.
Other investment banks have entered the space indirectly by providing resources to buyout companies, such as Deutsche Bank through Paternoster and JPMorgan through Synesis Life.
Mark Wood, chief executive, Paternoster said he was upbeat about the challenge of another competitor: "The move by Lehman brings more capital to the support of pension schemes and is further endorsement of the rate at which the market for defined benefit risk transfer is growing.
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