Stay informed with free updates
Simply sign up to the Fund management myFT Digest — delivered directly to your inbox.
Some of the UK’s biggest pension plans are taking advantage of steep price discounts to snap up real estate and other private assets, as fellow retirement funds put their harder-to-sell holdings on to the market.
Funds such as the Pension Protection Fund, the UK’s £32bn-in-assets retirement scheme lifeboat, and Border to Coast Pensions Partnership, a £60bn local authority pool, are among those looking for bargains in the secondary market as they try to profit from a wave of selling by some of their peers.
The PPF bought part of a property fund at a 35 per cent discount to net assets from a fellow pension fund this year.
“We were offered that discount, we didn’t try and drive the price down,” chief investment officer Barry Kenneth told the Financial Times, adding that the seller had offered that discount to all shareholders in the fund.
The PPF has earmarked up to £350mn to invest in property, including funds being offered for sale on the secondary market.
“We are progressing with a couple of managers to take advantage of market dislocations and/or depressed prices,” said Kenneth.
Portfolios of private assets are being dumped by so-called defined benefit pension schemes — funds offering members a set amount in retirement — as they try to prepare themselves for a buyout by an insurance company. This typically involves offloading illiquid assets that the insurer will not accept as part of the deal.
The number of schemes trying to get ready for such deals — last year a record £50bn of bulk annuity deals was agreed — has led to steep discounts on some assets, said investment advisers. That is particularly the case for real estate funds, but it is also seen in private debt and private equity portfolios.
“We have been most active in private equity secondaries given the larger opportunity set but continue to consider opportunities across the private credit and infrastructure spaces,” Christian Dobson, alternatives portfolio manager at Border to Coast, told the FT. Buying private asset funds, rather than investing directly, had helped diversify Dobson’s portfolio, he said.
Funds with high-quality assets run by a strongly performing manager may trade at only small discounts to par, while “venture capital and growth equity funds continue to trade at substantial discounts to par, representing greater uncertainty around valuations and future liquidity,” said Dobson.
While sellers of assets are typically corporate schemes preparing for buyout, many of those hoovering up assets are larger public sector players that are often flush with cash as they are still taking on new members.
“The bigger funds are more nimble and can act quickly,” said Chris Roberts, managing director at Dalriada Trustees, a firm of professional trustees.
Katie Sims, head of alternative solutions at consultancy WTW, said there were a few big opportunistic buyers in the secondary market putting in bids for some assets at discounts of 30-40 per cent.
However, interest from pension scheme buyers now appears to be helping narrow some of the price markdowns that had been available.
James Lewis, chief investment officer at consultancy Mercer, said there was now less of a mismatch between buyers and sellers, with some UK property funds once again trading at net asset value or, in some cases, even a small premium.
“We’re seeing that discounts are starting to narrow as values fall, public valuations recover and competition among buyers increases,” said WTW’s Sims.
