Money managers under the microscope
Drinking has acquired a new meaning today: it may not be good for you, but it will help pay pensions.
That’s the spirit! Quite literally.
Next time your GP/health conscious spouse/friend tells you to cut on alcohol, you can tell them Diageo has sealed a deal with its UK pension fund trustees, which includes transferring ownership for 15 years of up to 2.5 million barrels of Scotch whisky to make good its 862 million pound deficit.
Diageo is not the only large employer having to make contingent assets available to pacify pension trustees (and the Regulator), but it is certainly one that stands up in the crowd in its attempt– although a spokesman reassures me that the whisky pledge is no different from using property.
Under the deal; the UK pension scheme will own barrels of malt whisky for 15 years and will sell back its rights to Diageo for no more than 430 million pounds. It will meanwhile get about 25 million pounds a year for the duration of the partnership.
Pension schemes have retrenched in the wake of the global crisis.
To put it in more delicately: it is a universally acknowledged truth that a pension fund in deficit must be in want of a sustainable source of returns to bridge the funding gap, at moderate risks.
For some the solution has been to change investment strategy, but not necessarily at the expense of equity. In fact, for some the shift has been within an already existing fixed income portfolio, from UK gilts — a popular choice in the post-Lehman days — to corporate bonds, a senior fund manager tells me. Nice work if you can get it — this could be what some investors are saying now, especially if they are UK/euro zone sovereign debt holders.
Spare a thought for the UK Pensions Regulator: is losing its CEO next month (to a new agency set up to educate the UK public on money and financial matters) right at the time when its actions will be scrutinised.
Iberia and BA are telling the markets they want to merge, but the 3.7 billion pound BA pension deficit is also telling one or two things to the shareholders and investor squad. That is why what the Pensions Regulator says to BA’s plans to face the pension black-hole is very important.