UK - Insurance companies are unlikely to have the appetite to complete buyouts of large pension funds, the EMEA head of liability driven investment at BlackRock has said.
Speaking to IPE, Tarik Ben-Saud joked that it would take more than a century to cope with private sector liabilities of £1trn (€1.1trn), when total buy-ins and buyouts last year were only estimated at £5.2bn.
The reason for insurance companies' reluctance to address larger schemes' liabilities, according to Ben-Saud, is their desire to diversify investments and risk.
"The insurance companies are more willing to buy smaller pensions because they can buy a whole lot of them and diversify their book," he said.
He contrasted this with the buying out of a large industrial scheme, where employees are located in one region, which, he said, could burden insurers with cohort risk.
However, he added: "I think, ultimately, all pension funds are thinking about buyouts. Whether that is an actual buyout or a self-buyout is to be determined."
Respecting legacy pension schemes - often large, defined benefit schemes associated with "paternalistic" employers, Ben-Saud said many were either closing or closed to new accrual, meaning they will eventually reach a point when outflows outstrip inflows.
At this point, he said, trustees will be "asking their assets to sweat harder" to help offset a funding shortfall, an area where liability driven investment can be of use.
He argued that an important aspect to come out of the recent financial crisis was an increased awareness of governance issues among trustees and their relation to returns.
Ben-Saud said the last decade had been "sobering" for both trustees and sponsors due to a number of stock market downturns, and that that liability driven investment was attractive as an aim of reducing volatility.
"I can't afford, as a trustee or an advisory scheme, to go on a rollercoaster journey because I just don't know what may come out on the other side," he said.
A way to counteract this rollercoaster, he said, is to shift from a traditional static investment strategy to one that is dynamic, putting goals in place that, once achieved, trigger a shift in investment.
"The triggers almost help you focus your mind on what is important, what you want to get to," he said, adding that having these goals in place force trustees to revisit the issues regularly.