How Private Equity can potentially unlock value and opportunities from UK Defined Benefit (DB) Pension Schemes

Critical thinking

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19 days ago 19:15

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In this episode of Critical Thinking, Sinead Leahy, Co-Head of Cardano Advisory is joined by Nick Gibson, Managing Director, Cardano Advisory, and Dan Jackson, M&A Senior Principal at Mercer, to explore the key findings from our recent report, ‘Unlocking value and opportunities from UK pension funds – a private equity perspective’.
There has been a significant shift in the Defined Benefit (DB) landscape in recent years, with many schemes moving from a deficit position to surplus. Surveying over 100 private equity (PE) firms, we uncovered the opportunity for private equity to unlock value from UK pension funds.
Key takeaways include:
• The M&A opportunity from better funded DB schemes: pension schemes moving from a deficit to surplus means that schemes are no longer a blocker to M&A activity but rather a potential value driver, making a target business more attractive. Moreover, better funded schemes may mean less regulatory involvement in a deal, and less risk of deal value leakage.
• Investors are seeking to access surpluses: Companies can often access pension surpluses when a scheme is wound up via a transfer to an insurance company, however, the government recently announced upcoming reforms that are designed to facilitate the release of surpluses on an ongoing basis. Many companies are delaying insurer ‘buyouts’ to capture the potential upside, while some are already using surpluses to help fund their Defined Contribution (DC) schemes.
• What can be done to channel more pension money into PE: While mature, closed DB schemes have reduced investments into illiquid assets such as Private Equity, there are potential opportunities for greater allocations into private capital across open DB schemes, Local Government Pension Schemes, and DC schemes. The upcoming UK Pension Schemes Bill may facilitate consolidation of these pension schemes, which is designed to incentivise them to invest in a broader set of assets, such as private capital. At the same time, greater trustee education and engagement between pension funds and the PE sector will be crucial to unlocking further investment.
Citations:
1. M&A extends its reach in 2025 | Barclays IB (04:14-04:19)
2. DAS Design Center (04:14-04:19)
3. M&A outlook shows firming US 2025 deal market activity | EY – US (04:14-04:19)
4. 2025 M&A Outlook: 4 Trends Driving an Anticipated Rebound | Morgan Stanley (04:14-04:19)
5. UK and European M&A: Predictions for 2025 | Katten Muchin Rosenman LLP (04:14-04:19)
6. Chancellor’s Mansion House Reforms to boost typical pension by over £1,000 a year - GOV.UK (17:16-17:30)
7. PE Survey
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