UK – The treasurer of chemicals firm ICI says the company is actively diversifying its pension schemes’ equity portfolios.
There was an “active programme to diversify the equity portfolio” said David Blackwood, group treasurer at ICI, at a conference. But he expressed frustration at the speed of the process, likening it to that of a ‘giant tortoise’.
And he said the company has an active programme to enhance the yield on the schemes’ five billion-pound fixed income portfolio.
In September ICI awarded a combined 70 million pounds to high-yield specialist Muzinich and 70 million pounds in emerging market debt to Ashmore.
“The simple reality for a corporate is that pensions is part of the economic balance sheet of the group,” Blackwood said. He noted that some companies had made “disastrous” decisions in recent years by giving away surpluses that they didn’t have.
He said the key question for companies was whether to keep defined benefit schemes. His response to his own question was a resounding “No”. He pointed to longevity, inflation and reinvestment risk.
“From a simple risk management perspective – would you actually want to take it on?” ICI has just one DB scheme still open – because it is unable to close it, Blackwood said.
He said investors should be wary of companies with pension problems where the management is not devoting a lot of time to the issue.
On scheme valuation methods – FRS17, SSAP24 and actuarial valuations, he said: “All of them are relevant, none of them are right.” Taking the three methods together could give you a “sensible context”.
“There is no doubt that over time you want to reduce the deficit – it’s not rocket science.”
ICI had net liabilities across all its pension funds of 688 million pounds (1.05 billion euros) at the end of 2002.