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IPE special report May 2018

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Kodak UK pension fund re-examines PE after settlement

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UK – Kodak's underfunded UK pension scheme will slowly divest its private equity holdings in the wake of its $650m (€497m) court settlement that saw it acquire two of Eastman Kodak's (EKC) imaging businesses, a scheme trustee has told IPE.

Following the Kodak Pension Plan's (KPP) decision last week to settle a $1.8bn lawsuit with EKC, the scheme announced today that it would amend its benefit structure, in future only uprating pensions in line with statutory increases.

In a statement, trustees stressed that the redesigned benefits regime was necessary because the estimated £1.9bn (€2.2bn) deficit meant the current plan was "unsustainable"

KPP trustee Andrew Bradshaw said he hoped the "vast majority" of the fund's members would opt to transfer to the new scheme, offering what he argued were more generous pensions than those offered if members opted to enter the Pension Protection Fund (PPF).

The PPF offers inflationary benefit increases capped at 2.5% and imposes overall benefit caps.

Bradshaw added that the new scheme, now closed to new accrual, would re-examine its investment strategy in light of the acquisition of the Personalised Imaging and Document Imaging businesses, selling some of its nearly 20% stake in private equity.

"That means, where we've looked to things like private equity for growth, we'll actually now start to come out of that over an appropriate period of time and go into less return-seeking assets for the non-[company] holdings," he said.

"You need to re-jig the investment strategy, so it looks more like you'd usually expect – so that we're not overexposed to risk-returning assets."

Referencing the income expected from the two new companies, he added: "When we did the modelling on the cash flows, we assumed a more conservative investment strategy than we've currently got."

Bradshaw said the scheme was not currently looking at infrastructure or other structured bond holdings as a way of guaranteeing income.

"I suspect infrastructure probably not because I think we'll look at things in a different light now that we've acquired the [company] assets."

At the end of December, KPP had 15% of its £1bn in assets in a hedging and derivatives portfolio, 6% in public equities, 13% in alternative bonds, 42% in absolute return funds, 18% in private equity, 2% in property and 4% in cash.

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