UK - Private equity firms need to work harder to win over pension trustees, as 72% are fearful about possible private equity acquisitions, Aon Consulting has revealed.

The survey of 250 trustees of defined benefit schemes revealed nearly three-quarters were concerned about the prospect of a takeover by private equity firms, and this figure increased to 80% among trustees of schemes valued at £100m (€134m) or more.

Findings revealed the most common concern, for 30% of respondents, related to short-term funding requirements for pensions, while 20% worried about deterioration in the strength of the employer covenant, a further 20% raised concerns about a lack of interest in scheme members, and 15% admitted to be afraid of the unknown.

But as trustees have become more influential in corporate transactions involving private equity, such as Kohlberg Kravis Roberts' (KKR) buyout of Alliance Boots and Delta Two's recent failed bid for Sainsbury's, (See earlier IPE.com story J Sainsbury goes it alone) Aon suggested trustee support will be "one of the key battles" if private equity firms are to be successful in bidding for companies with large DB scheme.

Paul McGlone, principal and senior actuary at Aon Consulting, said trustees play an essential role in protecting members' interests and warned "would-be private equity acquirers must engage with trustees to allay their fears at an early stage".

He claimed the survey shows the private equity industry "still has challenges to face to win the backing of trustees, who are not just concerned by its asset-stripping reputation or fears over scheme funding, but also by the attitude to scheme members".

McGlone admitted some trustees' fears are "very specific and well-founded" such as their concerns that high gearing could move the scheme down the order of creditors, but he warned trustees should also recognise the "potential benefits that a new owner can bring".

As a result, he claimed trustees "must carefully assess the impact of any private equity acquisition on their sponsor and scheme on a case by case basis", then they can decide how they might protect members' interests in the event of a takeover.

That said, trustees have a more positive opinion of private equity as an investment option than previously seen, as 21% of trustees admitted they are either considering or have already invested in the private equity market.

In schemes valued at £100m or more, the number of trustees which are considering or have already allocated funds into private equity increased by 10% to almost a third, despite 80% being scared of a possible private equity takeover of their sponsoring employer.

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