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Advisers on what has changed since the ’08 crash

Around five years have passed since the start of the UK’s financial crisis, prompting Laura Miller of magazine to ask Jackal’s Director of Pensions, Simon Kew, for his thoughts on how things have changed for trustees, pension schemes and their sponsors.”

Five years on from the financial crisis is the world of money a safer place? Laura Miller asks the advisers on the front line.

Five years ago the financial world was in turmoil. Problems that had been building up for years – subprime mortgage lending, easy credit conditions, the over leveraging of banks – converged and blew up, affecting global markets, governments and people everywhere.

Financial institutions collapsed and politicians, largely in developed countries, pumped billions into the sector to prop it up – a legacy which will take generations to right. Regulation has been overhauled in this country and around the world.

The five year anniversary of the biggest financial disaster since the Great Depression seems a fitting time to ask advisers whose job it was to steer clients through the worst, where are we now?

Jackal Advisory director of pensions Simon Kew approaches the question first from a pension scheme trustee perspective. He believes trustees and employers are more aware of risk post crisis, leaving a much more cautious approach to scheme funding.

However his outlook is pretty bleak for employers, even as – or because – the economy is recovering.

“With the ‘green shoots of recovery’ comes increased interest rates, which can impact those employers that have been clinging on by their fingertips throughout the crisis,” he said.

Also he notes that rates charged on borrowed money will increase more quickly, in the main, than profitability, causing a widening gap in cashflow in and out of a business.

“This could cause businesses to become ripe for a takeover or, in a worst case scenario, insolvent. There are methods to help stave off insolvency, but the scheme sponsor needs to take urgent advice from people that fully understand pensions, insolvency and the regulatory process. The sooner they do this, the greater the number of options open to them.”

Additionally, Kew said, there is the prospect that The Pensions Regulator, in fulfilling its duty to protect calls on the Pension Protection Fund (PPF), may force an employer into insolvency to bring ‘PPF drift’ to an end. “This is a very real risk for employers, employees and scheme members.”

Yellowtail managing director Dennis Hall believes there is still a lot of anxiety in financial markets, and among clients, though attitudes with the latter are shifting in the desperate hunt for returns.

“If you looked at equity markets, you’d think we were almost out of the woods, but the volatility in markets to any kind of stimulus change from the Fed or other central banks shows that there’s a lot of underlying nervousness. Banks still don’t have the liquidity they need to keep money flowing, and this is a danger.

“Clients are a little more wary of things that could go pop, but we are blighted by poor memories and an attachment to the most recent events. Now it’s the stockmarket and property that is attractive, bonds very unattractive and cash paying nothing. So people will take excess risk to obtain income and returns.”

Financial Tracking & Advice managing director Trevor Harrington thinks there is a long way to go to for the global economy to recover properly – but that that is how it should be.

“The slow gradual recovery which we have already seen is infinitely preferable to a short sharp boom with the obvious consequences,” he said.
Right now, he is telling clients to get back into the market and take advantage of what he sees as some great opportunities.

“Short term issues will always be a market mover, such as the euro, and the end of quantitative easing, but for the longer term investor looking at three to five years, I must say that I have rarely seen such encouraging investment opportunities during the last 33 years in investment management.”

He favours developing economies, calling them the “most exciting” place to invest at the moment, despite sterling valuations of them during the last year and that in the short term their limited size makes them susceptible to short term money flying in and out again from Western institutional investors.

“We should remember that these are the economies of the world which will benefit most from a gradual global recovery. Emerging economies have more to offer over the next two to five years than the developed world, which is based on the assumption of a slowly recovering world economy,” he said.

A financial crisis as deep as the 2008 meltdown doesn’t happen without leaving some scars, however.

Independence Wealth chief executive Rob Noble-Warren – who said he forecast the financial crisis and briefed his clients for two years before calling a withdrawal from equities in February 2008 – believes global finance is no safer than before the crash and that there are more, not less, risks on the horizon.

“We are worse off. The financial crisis revealed design flaws in the way that we regulate banks, and now we’re looking at how flaws are revealed in our major industries. The question is no longer about which banks will fail as which countries will fail.”

Clients, he said, are now “more aware” than before the crash, but are “more grim” about their children’s future.

So what have we learned from the crash?

Hall believes we’ve got better at spotting the kinds of risk that brought about the recession, but doesn’t think that necessarily means we will recognise another type of risk, or a new one.

“We continually keep getting caught out. It’s a bit like who will blink first. If the economy is booming, and we know there’s trouble somewhere, which country will pull the plug first and then lose competitive edge?

“There’s more reporting by financial institutions, and higher solvency ratios in place, but the bottom line is, if the Fed pull the plug we’re likely to tip into recession quickly, and then we’ll find out who’s exposed. Perhaps the bigger dangers will come from regulators, governments, central banks and policymakers.”

Kinder Institute of Life Planning founder George Kinder says…

“Everyone talks of excess leverage as being the cause of the financial crisis, and there have been lots of ‘reforms’ both in the UK and the US that are helpful. But the underlying cause was disrespect for the financial industry’s clients at the expense of the financial industry’s anticipated profits. This lack of respect is palpable, and is measured in all the polls as “lack of trustworthiness”, “lack of trust”. Fundamentally it is a lack of integrity, not placing clients’ interests first. There is a blindingly obvious solution to this, and that is for a company to institute across the board trustworthy policies, directives and procedures so that it stands head and shoulders above its competitors and clients flock to it.”

Category : Savants in the News — admin @ 6:06 am September 30, 2013

NAPF’s Annual Conference in Manchester

Annual Conference & Exhibition 2013

This year, we are proud to announce that our Director of Pensions, Simon Kew, will be speaking at the NAPF’s Annual Conference in Manchester.

The event typically attracts 1,450 top industry professionals and approximately 80 exhibition stands. From trustees, pension managers and finance directors who control assets worth billions of pounds to HR specialists responsible for workforces of thousands of people, the delegates are made up of the most important pension decision makers in the country.

Simon will be sharing the stage with Elmer Doonan of Dentons and Tim Keogh from the Pensions Regulator. This should be especially interesting, given Simon’s three years working for tPR in Brighton!

The subject is ‘The Law, the Pensions Regulator and You’ and promises to cover recent case law, guidance, the fall-out from some of tPR’s recent decisions and its new objective.

For details of the session, the conference and how to register, please click on the banner below or contact Simon directly on or 07920511023.

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Category : Savants in the News — admin @ 10:50 pm September 20, 2013

Kodak deal captures new age of sponsor-scheme creativity

Given the completion of the Kodak pension Plan (KPP) deal, Simon Kew – Jackal Advisory’s Director of Pensions – was asked for his thoughts around the deal’s impact and what tPR and the PPF may have been thinking in sanctioning the transaction.

News analysis: Purchasing assets from insolvent sponsors could become more common for schemes looking to secure member benefits, according to lawyers working on the Kodak case.

Trustees of the Kodak Pension Plan have this week finalised the purchase of Eastman Kodak Company’s personalised imaging and document imaging businesses, valued at $650m (£416.17m), after US-based EKC emerged from bankruptcy last month. The acquisitions will be owned by a new entity named Kodak Alaris.

The offload will help EKC streamline its business but crucially will provide KPP with cash flow-generative assets from which to pay members’ benefits.

Pensions Week reported in June that Kodak’s scheme members were invited to vote on their future within the plan.

Ross Trustees’ Andrew Bradshaw, acting on behalf of KPP, said scheme members had voted “overwhelmingly in favour” to stay in the scheme under the new sponsor, with the remaining members going into the Pension Protection Fund.

How the scheme’s £1bn assets are to be split between the new scheme and the PPF will be decided over the next few weeks, he added.

The deal

KPP had $2.8bn of legal claims against EKC and its solvent UK subsidiary Kodak Ltd. These claims have since been withdrawn as part of the acquisition – a move that meant the scheme had to pay only $325m for the two businesses.

Katie Banks from law firm Hogan Lovells, who was lead partner on the case, said the deal was mutually beneficial as the cash raised from the sale helped EKC emerge from bankruptcy and created an alternative route to settle the scheme’s claim – which at the time threatened the solvency of Kodak’s UK subsidiary.

“We realised that it would solve two problems for [EKC]; one, it would help them sell the businesses and two, it would deal with their biggest unsecured creditor,” she said.

The law firm was involved in the UK Coal debt-for-equity swap last year in which trustees took the property portfolio off the employer in return for releasing certain claims. “And it does seem to be an option that can make both parties happy,” Banks said.

The Pensions Regulator issued a statement in which it said the Kodak deal “best balances the needs of members, the PPF, the company and its employees” but added there are still “monitoring a governance arrangement” to be resolved.

Simon Kew, director of pensions at Jackal Advisory, said trustees should have a robust and clearly identifiable system for monitoring the strength, value and profitability of the two companies they have acquired.

“If I owe you £20 [and] don’t have the cash to pay you back now, but I offer you an asset to keep hold of until I give you the £20, you’d want to make sure that asset will continue to be worth at least £20,” he said. “The regulator is effectively saying the same thing.”

He added that there is a “clear indication that pressure is being felt by [the regulator] to look at increasingly innovative deals” to maintain employers, while allowing the scheme to secure or improve its position. But Kew said the move was “positive for UK plc, positive for those schemes with sponsors important/rich enough for the regulator/PPF to be interested in, and positive for the PPF”.

Martin Clarke, the PPF’s executive director of financial risk, said it welcomed the completion of the deal, adding the KPP trustees have secured “an opportunity to remain outside of the PPF, in both members’ and our levy payer interests”.

Category : Savants in the News — admin @ 12:00 am September 5, 2013