With Conditions Improving, Pension Buyout Firm Paternoster Looks for Action

(December 10, 2009) – British pension fund buyout firm Paternoster is set to jump back into the fold following a strengthening of the firm’s capital base and improving market conditions.

According to London’s Independent, the firm’s new chief executive has been in discussions with Britain’s Financial Services Authority (FSA) about the potential to start entering into new business agreements. Before the firm went quiet in early 2009, it had entered into deals worth up to $3.5 billion to take on the pension liabilities of numerous companies. However, increased concern from the FSA and a depressed market for pension buyouts slowed the firm’s actions to a trickle in the first months of the year. Following nearly eight months of silence, the firm, in September, had to approach shareholders for a $7.5 million capital injection and replaced Chief Executive Mark Wood with Ed Jervis, allowing it the fresh capital and faces needed to reenter the market.

The Independent is predicting that the firm, along with others in the buyout space, increasingly will emphasize longevity swaps, which are less capital-intensive than buying out a company’s entire pension liabilities [to see ai5000’s article on the evolution of longevity protection in the defined benefit market – ‘The Problems with Whiskey and Women’ – click here ]. Reports are that the firm soon will close a deal with Deutsche Bank, which is a part owner of the buyout firm.

Paternoster is in competition with Pension Corporation—the two firms were actually close to combining forces earlier in 2009, but the deal fell through as market condition deteriorated—with the latter enjoying greater success in the last 11 months in both raising capital and closing deals. Pension Corporation’s most prominent deal has been the $330 million buyout of the British retailer Harrod’s pension fund. Another provider—Lucida—insured nearly $750 million in liabilities for the Merchant Navy Officer Pension Fund, a further indication of a revived pension buyout market.