New research from Standard Life indicates that many defined benefit (DB) trustee boards are considering in-specie transfers of illiquid assets to aid their preparation for bulk annuity transactions.
M&G’s recent £60m buy-in with an unnamed pension scheme included the sale of an illiquid asset to the company’s With Profits Fund, and similar transfers or secondary market sales are increasingly of interest to trustees as they approach the insurance market.
Standard Life’s survey of more than 100 DB scheme trustees found that in-specie transfers and secondary market sales are the leading options for more than half (51%) of respondents. Such moves can improve the certainty and timing of transactions, as illiquid assets such as private equity, private debt, or real estate can delay deals.
Standard Life said the trend “reflects growing demand for flexible, cost-effective solutions as schemes scrutinise illiquid portfolios more closely”.
Handling illiquid investments has become a key issue for DB schemes’ endgame planning over the past few years, since the 2022 gilts crisis improved funding levels for many schemes and accelerated journey plans.
Companies such as XPS, Isio and MeltX have launched services aimed at helping DB schemes sell private markets assets. In-specie transfers direct to insurers remain rare due to restrictions on what assets insurance companies can hold, but some bulk annuity deals have included such transactions. Pension Insurance Corporation’s £1.3bn buy-in with the Coats UK Pension Scheme, announced in September 2024, included an in-specie transfer of some illiquid assets.
Standard Life’s survey found that in-specie transfers were more likely to appeal
How pension schemes are solving illiquid asset issues
In this article from May 2024, Pensions Expert took an in-depth look at how pension schemes, consultants and insurance companies are working to secure bulk annuity transactions despite issues caused by illiquid assets. Read the full article.
A broad toolkit for DB schemes
Claire Altman, managing director of pension risk transfer and individual retirement at Standard Life, said: “Managing illiquid assets remains one of the most challenging aspects of preparing for buyout, and trustees across the industry are considering a wide range of approaches to navigate this complexity. While in‑specie transfers and secondary market sales can play a role for some schemes, they are just part of a broader toolkit that trustees are exploring.
“The feasibility of any solution depends on a variety of factors – from insurer appetite to the characteristics of the underlying assets and the regulatory requirements that govern what can be transferred. This is why early engagement is so valuable, and trustees recognise the importance of understanding the full menu of options available to them, rather than relying on any single route.”
Standard Life’s research showed that trustees were considering a range of options for private markets assets, including deferred premiums – where part of the payment to an insurer is delayed to facilitate an asset sale – or the potential for sponsoring employers to take on an asset.
Trustee boards need to consider asset liquidity, valuation certainty, and timings, Standard Life said, as delays or poor advice can significantly affect the timeline for transactions.
“The absence of preparation and strong counsel can cause hold-ups in transacting, and with market activity expected to remain elevated and insurer capacity fluctuating over time, the cost of delay is becoming more evident,” the insurer stated. “Schemes that prepare early and engage proactively will be best placed to secure insurer interest and maintain momentum as they progress towards buy-in or buyout.”
