UK - Traditional pension funds are among the shareholders of new pension fund buyout company Paternoster, says chief executive Mark Wood.

"Paternoster backers also include some traditional pension funds. So we have pension funds investing in pension fund buyouts - an interesting phenomenon," Wood said in a web conference this week, although he didn't name the funds. When the company launched earlier this year backers were named as Deutsche Bank and the hedge fund Eden Park.

Woods is targeting medium-sized companies and estimates this market could be worth £6bn or £7bn in 2007.

Hewitt Associates consultant Kevin Wesbroom said on the conference that the emergence of new buyout players signalled potentially a "very different phase" for pension funds."
"You have to start to question what the pension plan is doing," he added. "Its hardly recruitment and retention - the classic phrases that we used to put forward as the reasons why people had plans."

Finance directors were now looking at pensions as purely a cost to be minimised, Wesbroom noted. "Once you set on the route that says ‘get me out of here' it then becomes a question of tactics and timing, rather than a philosophical one."

He added: "I think the next five to 10 years in pension plans are going to be dominated by a structured approach to risk management with a finite end game."

Wesbroom queried the costs of buyout but Wood argued that it need only be about 10% higher than the economic cost.

He said: "Companies are going to pay the economic cost - they don't recognised it in their accounts at the moment - so the buyout premium is manageable."