Superfunds could be on course to complete multi-billion-pound transfers of defined benefit (DB) funds by the end of this year, Isio says.
As the economic crisis provoked by Covid-19 continues to press on, distressed sponsors may seek alternative ways to offload their pension scheme and secure their members' benefits, according to partner Mike Smedley.
While consolidators - The Pension Superfund and Clara - have reportedly focused on lining up small scheme transactions up to this point, the heightened economic challenge could see their scale ramp up very quickly after regulatory approval.
"Initially, the view was that they'd start doing small deals and then they'd build up their scale over a period of time, but there is probably an appetite, certainly for some players in the market, to say ‘well, actually, we can get to £3bn really quickly by one or two big deals," Smedley said.
"There are a couple of high street names that have gone insolvent in the last 12 months with big pension schemes and they'd be very keen to do those deals rather than them go to insurance."
These schemes are most likely to be funded above Pension Protection Fund (PPF) compensation levels, but below buyout. For them, a consolidator could allow them to provide full benefits to members.
Nevertheless, the next few months will prove pivotal for commercial consolidators, Smedley said. They will need to complete several deals to prove their worth and make up for the long period of stagnation as they awaited regulatory direction.
"The consolidators haven't yet made a pound of profit or income. They've obviously been spending money. So, they clearly need to start getting some business in the door now. The next 12 months is make or break for them."
The interim regulatory regime has "validated" expectations that consolidator pricing will likely be around 10% cheaper than buyout pricing. This was the "only sweet spot they could have landed in", Smedley said, without being off-putting or too close to insurance.
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