UK – Pension Insurance Corporation (PIC) has completed its first UK publicly listed solar finance bond, investing £40m (€49.6m) as the sole buyer in a Solar Power Generation bond maturing in 2036.
According to PIC, the bond is linked to two 5 megawatt solar plants in Somerset owned by Solar Power Generation, which operates and maintains large-scale Solar PV parks.
PIC said the bond would provide a good match for its pension liabilities, with a highly predictable, inflation-linked cash flow from a regulated entity, stretching for 24 years.
The steady cash flow is generated by the production of renewable energy, with payments made under the feed-in tariff regime, which is regulated electricity regulator Ofgem.
The bond will be held as part of PIC’s £6bn portfolio and will sit alongside the recent £50m bond issued by Raglan Housing Association, in which PIC was the sole investor, the company added.
Meanwhile, research conducted by Towers Watson has shown that high risk in UK pension schemes is an important factor in suppressing the price/earnings ratios of their sponsoring companies.
The consultancy firm argued that high pension risk companies typically have lower price/earnings ratios and warns that in aggregate, pension risk is twice as high as it should be.
This phenomenon could, according to Towers Watson, precipitate more company defaults as the economy recovers.
Alasdair MacDonald, head of investment strategy at Towers Watson, said: “During the past decade it has only been at the extremes where pension funds were responsible for the collapse of a few companies.
“However, now we are seeing more clearly the extent to which excessive risk in the pension fund has dampened share performance in the past and how it could potentially imperil many more companies in the future, when the economy recovers and financing rates increase.”
According to Towers Watson, corporate default rates have been lower than expected despite historically high economic contraction and very low financing costs have preserved some companies that might otherwise gone out of business.
It expected that when short rates normalised corporate default rates could rise, particularly in sectors where companies rely heavily on financing and where there is high pension fund risk.
Finally, fears around the stability of the euro-zone and the global economy have led UK pension funds to increasingly look at ways to reduce volatility in their portfolio, according to a survey conducted by Barings Asset Management.
Over a third of the 85 investment managers of UK private and public pension schemes interviewed said they were ‘very concerned’ about market volatility, Barings added.
These concerns over volatility led to recent changes in pension schemes’ asset allocation, with 69% of people surveyed saying that a review in their asset allocation had been made over the past months.