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Aspinall, Carlyle hope to do capital-backed deals this

year

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Superfund Clara also considering capital-backed

structure-source

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Edi Truell offering capital-backed deal for Thames Water

pension

By Carolyn Cohn

LONDON, May 24 (Reuters) - Hedge fund Davidson Kempner

and asset manager M&G are racing to be among the first

firms to inject capital to boost Britain's 1.4 trillion pound

($1.77 trillion) pension sector, industry sources say.

In a so-called "capital-backed journey plan", investors

provide a pension scheme with extra capital, in return for any

investment returns above an agreed level after a set number of

years.

There has only been one such deal so far, but the market is

seen heating up as an alternative to a bulk annuity, which

involves the transfer of a pension scheme to an insurer.

"There is a lot of private capital out there that would like

to deploy its capital in this market," said Derek Steeden, a

director at PwC.

Britain's 5,000 defined benefit pension schemes were mostly

in deficit overall following the global financial crisis. But

rising interest rates in recent years mean most are now in

surplus and can afford a bulk annuity, considered the gold

standard in providing safety for pension schemes and removing

liabilities from employers' balance sheets.

While bulk annuities have become more affordable, some

employers are keen to continue to run their pension schemes

themselves, which is where investor capital can help.

"Running schemes on could present an opportunity for members

to receive higher benefits and companies to see a return of some

of the billions of pounds of contributions they have sunk into

UK pension schemes," said Simon Turner, partner at consultants

Mercer.

M&G told Reuters by email that it was entering the market.

Davidson Kempner is also looking to offer such deals,

according to Steeden - one of the authors of a report on

capital-backed journey plans -, Turner and a third source with

direct knowledge of the matter. Davidson Kempner declined to

comment.

Investment firm Aspinall Capital Partners pioneered the

first capital-backed deal in 2020. Aspinall's Chief Investment

Officer Michael O'Connor said he was "hopeful" of doing another

deal this year, and confident of deals in 2025, adding that

there was "a lot of interest behind the scenes".

Pensions specialist Punter Southall is working with private

equity firm Carlyle and institutional investors to

provide capital to pension schemes with assets of at least 250

million pounds, Punter Southall principal Richard Jones said.

Jones said the firms' Pension Safeguard Solution had a

pipeline of deals and hoped to complete "one, maybe two" this

year.

Clara-Pensions, a so-called superfund which takes on

pension schemes until they can buy a bulk annuity, is also

looking at a capital-backed structure, Turner said. Such

structures do not break the link between the employer and the

pension scheme. Clara declined to comment.

Industry veteran Edi Truell's Pension SuperFund Capital has

offered to put "a couple of hundred million" pounds into Thames

Water's pension scheme in a capital-backed deal, Truell told

Reuters. Thames Water declined to comment.

Capital-backed journey plans are not all regulated, though

some may be assessed by The Pensions Regulator.

The regulator will publish guidance to trustees later this

year on issues to consider when choosing such plans, a

spokesperson told Reuters by email.

Sources say there is increasing demand for the deals, as

pension schemes have had time to reassess funding positions

following a badly executed mini-Budget in September 2022, which

sparked a jump in UK government bond yields and forced pension

funds to sell assets in a hurry to get cash.

($1 = 0.7895 pounds)