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Banking

UK: New solutions for pension fund shortfalls

UK companies struggling with pension fund shortfalls have been thrown a lifeline in the shape of investment banks and hedge funds. Wheels are in motion to create a market of defined benefit pension buyout ventures back by banks, hedge funds and entrepreneurs.

Paternoster

Mark Wood, former head of insurance company Prudential UK, has set up the first of such ventures, Paternoster, a life insurance company, and last month succeeded in securing $500 million in equity financing from a consortium led by Deutsche Bank and hedge fund, Eton Park International. After approval by the UK Financial Services Authority, Paternoster will take over pension fund liabilities of small and medium-size companies that have pension fund deficits. Initially it is believed that the firm will aim to assist firms by cutting down on administration costs, although there is also the option to manage pension fund assets directly.

In the UK, only Legal and General and Prudential provide bulk annuities to employers looking to dispose of their liabilities, and government ministers are reported to be glad of the new and potentially growing competition from such operations as Paternoster.

Wood was known to be interested in taking over Marconi’s pension scheme, although UK newspaper reports suggest he has as many as 100 potential deals being offered to him.

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