A third of VCs will not invest with companies with a DB pension deficit
A third of mid-market venture capitalists will not invest in a company with a pensions deficit from a defined benefit scheme, according to a survey conducted by Grant Thornton Corporate Finance. Whilst every venture capitalist questioned said they had completed at least one deal involving a company with a pensions liability over the past twelve months, over 80% of respondents said this was not the case in the majority of their new investments.
Looking at the results in greater detail, venture capitalists' exposure to pension liabilities appear to be relatively under control. Asked what proportion of their portfolio was exposed to significant pensions deficits, almost half (48%) claimed to have no deficits whilst 37% admitted to having pensions liabilities within a tenth or less of their portfolio. The remaining 15% declared significant deficits within a higher proportion of their investments - the highest being 70% (of their whole portfolios) for 2% of the VCs surveyed.
The underperformance of the stock market over recent years and improving mortality rates are two of the principal catalysts which have triggered defined pensions deficits. The implementation of FRS17 in November 2001 brought into focus the necessity for balance sheet transparency in relation to the status of defined pension schemes.