How Private Equity can potentially unlock value and opportunities from UK Defined Benefit (DB) Pension Schemes

In this episode of Critical Thinking, Sinead Leahy, Co-Head of Cardano Advisory is joined by Nick Gibson, Managing Director, Cardano Advisory, and Dan Jackson, M&A Senior Principal at Mercer, to explore the key findings from our recent report, ‘Unlocking value and opportunities from UK pension funds – a private equity perspective’. There has been a significant shift in the Defined Benefit (DB) landscape in recent years, with many schemes moving from a deficit position to surplus. Surveying over 100 private equity (PE) firms, we uncovered the opportunity for private equity to unlock value from UK pension funds. Key takeaways include: • The M&A opportunity from better funded DB schemes: pension schemes moving from a deficit to surplus means that schemes are no longer a blocker to M&A activity but rather a potential value driver, making a target business more attractive. Moreover, better funded schemes may mean less regulatory involvement in a deal, and less risk of deal value leakage. • Investors are seeking to access surpluses: Companies can often access pension surpluses when a scheme is wound up via a transfer to an insurance company, however, the government recently announced upcoming reforms that are designed to facilitate the release of surpluses on an ongoing basis. Many companies are delaying insurer ‘buyouts’ to capture the potential upside, while some are already using surpluses to help fund their Defined Contribution (DC) schemes. • What can be done to channel more pension money into PE: While mature, closed DB schemes have reduced investments into illiquid assets such as Private Equity, there are potential opportunities for greater allocations into private capital across open DB schemes, Local Government Pension Schemes, and DC schemes. The upcoming UK Pension Schemes Bill may facilitate consolidation of these pension schemes, which is designed to incentivise them to invest in a broader set of assets, such as private capital. At the same time, greater trustee education and engagement between pension funds and the PE sector will be crucial to unlocking further investment. Citations:1. M&A extends its reach in 2025 | Barclays IB (04:14-04:19)2. DAS Design Center (04:14-04:19)3. M&A outlook shows firming US 2025 deal market activity | EY – US (04:14-04:19)4. 2025 M&A Outlook: 4 Trends Driving an Anticipated Rebound | Morgan Stanley (04:14-04:19)5. UK and European M&A: Predictions for 2025 | Katten Muchin Rosenman LLP (04:14-04:19)6. Chancellor’s Mansion House Reforms to boost typical pension by over £1,000 a year - GOV.UK (17:16-17:30)7. PE Survey This content is for institutional investors and for information purposes only. It does not contain investment, financial, legal, tax or any other advice and should not be relied upon for this purpose. The materials are not tailored to your particular personal and/or financial situation. If you require advice based on your specific circumstances, you should contact a professional adviser. Opinions expressed are those of the speakers as of the date of the recording, are subject to change without notice and do not necessarily reflect Mercer’s opinions. This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products or constitute a solicitation on behalf of any of the investment managers, their affiliates. For the avoidance of doubt, this is not formal investment advice to allow any party to transact. Additional advice will be required in advance of entering into any contract. Read our full important notices here

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