UK – A new study claims pension fund trustees have become like bankers – although they probably aren’t managing credit risk as bankers would.
The new Pensions Regulator, argue John Hawkins and Cliff Speed, made trustees “start thinking they are like any other unsecured company creditor – in other words, like a banker”.
“The trustee is dead; long live the pension trustee creditor,” they write in the latest issue of The Treasurer magazine, the journal of the Association of Corporate Treasurers.
Hawkins, former head of finance and risk at Invensys and Speed, principal consultant at Hewitt Bacon & Woodrow, put forward various methods that trustees can deal with credit risk.
Among the techniques proposed is to short sell the sponsoring company’s shares, as well as derivates and complex strategies such as sponsor-guaranteed loans or special purpose vehicles.
They say: “Trustees have a duty to reinvent themselves as creditors to ensure they manage pension scheme deficits, which, in financial terms, are loans provided to their sponsors.
“Trustees rising to the challenge will find a wide variety of instruments for mitigating the credit risk to which they are exposed.”
But the authors query whether trustees are up to their latest task.
“However, many trustees will be challenged to demonstrate they are doing all that a banker would when faced with a comparable credit risk.”
“Trustees and sponsoring companies of schemes with deficits need to start a dialogue, especially if the creditworthiness of the sponsor is other than first-class.”