UK - Financial services firm Citigroup has made its first step in the pension fund buyout arena with the purchase of a £200m (€294m) defined benefit pension fund previously owned by Thomson Regional Newspapers (TRN).

Exact terms of the transition have not been revealed but it is thought this is the first deal of its kind in the UK as Citigroup will now become the sponsor and take financial responsibility for the support of the pension fund from October through a new division, created last year by Wiltrud Heiss, called Insurance & Pensions Structured Solutions Group.

The TRN pension fund has been closed to new members for over 10 years but has around 3,600 members, 800 of which are deferred.

Under the terms of the deal, Citi will act as the sponsor to the fund but it will still be run as a defined benefit scheme and the trustee board - comprised of an independent chair, one employer trustee and three member-nominated trustees - will still make all of the investment strategy decisions concerning its asset allocation and issue any mandates.

Francis Fernandes, head of pensions actuarial at Citi, said the firm will now take on responsibility for the longevity and investment liabilities of the fund which represents existing and former employees of several Scottish newspapers.

Fernandes said the firm is likely to apply asset liability management (ALM) and liability-driven investments (LDI) and hedging through interest rate swaps to support the fund's cash flow needs and reduce liability risk, while Citi will "set aside monies to cover the impact of any adverse future uncertainties and thereby, further enhance the security provided for members' benefits".

Several firms have announced their intention to enter the pensions buyout arena within the last 12 months but it is thought Citigroup is the first to sign a deal taking full responsibility for a pension fund.

Fernandes said he believes there is less scope for a move toward full pension fund buyouts than might first appear as there are "not as many people with pension schemes who are prepared to [consider] buyout".

That said, Citi is expected to focus its attentions on the mature UK defined market because "the legislative hurdles mean people are looking to secure their liabilities in full" while Ireland, Switzerland and the Netherlands have pensions environments which might also be amenable to pensions responsibility transfer.

Paternoster, headed by former Prudential chief executive Mark Wood, and Synesis Life were created specifically to tap into what is considered to be a lucrative market, while Aegon and UBS signed a deal in May and launched UBS Aegon Affordable Risk Transfer Solutions, to produce a bulk annuity buyout solution targeted at medium-sized schemes.

The name Rothesay Life was also authorised last month as the official name of Goldman Sachs' buyout division.

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