Private credit managers are increasingly directing attention to Britain’s £1tn-plus defined-benefit pension market as a source of capital. Insurers are allocating a growing share of their portfolios to private assets, according to Private Equity Wire.
Standard Life Partnership Signals New Channel
A new partnership involving Standard Life, CVC Capital Partners, Goldman Sachs and PGIM will see investors commit $2bn to private-market assets. Standard Life stated that the arrangement supports its business of assuming responsibility for defined-benefit pension schemes from corporate sponsors. The transaction represents the latest instance of investment firms seeking access to the UK’s pension risk-transfer market.
Scale of Remaining Liabilities
UK defined-benefit pension schemes retain more than £1tn ($1.35tn) of liabilities yet to be transferred to insurers, according to Stephen Purves of consultancy XPS. Many schemes remain closed to new members while holding substantial asset pools. Higher interest rates have reduced the value of pension liabilities and moved many schemes into surplus, enabling trustees to pursue bulk annuity transactions.
Once completed, these transfers place responsibility for managing pension assets and retirement payments with insurers. The long-term liabilities make private-market investments attractive for matching against assets such as private loans, infrastructure and real estate.
Major Firms Enter Pension Risk-Transfer Market
Apollo, Brookfield and Blackstone have expanded their participation in the UK’s pension risk-transfer market over the past year through ownership stakes in insurers or by supplying private-market assets. S&P Global estimates that roughly 40% of assets supporting UK insurers’ retirement businesses are invested in private markets and other non-publicly traded assets. Around one-third of that private-market allocation consists of private credit, including loans to mid-sized companies.
Blackstone has agreed to supply private-credit investments to Legal & General for its retirement portfolio, including financing for a grocery distribution centre in North Carolina. Blackstone also provides private-credit assets to a Bermudian reinsurer that gains indirect exposure to Britain’s pension market. Brookfield acquired life insurer Just Group and plans to support its portfolio with investments in infrastructure, energy and real estate.
Apollo has expanded through Athora, the European insurer in which it holds a minority interest. Athora acquired Pension Insurance Corporation, a specialist in corporate pension scheme transfers. The combined business holds around £118bn in assets serving approximately 3.1 million savers and retirees. Athora expects its relationship with Apollo to deliver private-credit assets originated by the US firm, with a significant portion denominated in sterling to match UK liabilities.
Asset Growth and Regulatory Scrutiny
The strategy contributed to Apollo’s reported additional $65bn of fee-paying assets under management in the second quarter. The Bank of England has warned that competition for pension business and pressure to maintain profit margins could encourage insurers to assume additional investment risk without sufficient compensation. The Bank has also stated that insurers do not currently hold enough capital to absorb losses from some offshore arrangements and plans to increase those requirements, according to Private Equity Wire.
