The UK management of Kvaerner, which bought the UK operations from the Norwegian shipping group of the same name last year, has agreed a deal with the Pensions Regulator that allows it to walk away from the liabilities of its distressed pension fund after six years, it emerged yesterday.
Writing on behalf of RBC Capital Markets, the pensions analyst John Ralfe revealed that the fund has more than a quarter of its assets invested in high-risk hedge fund and private-equity investments.
According to Mr Ralfe, the £1.45bn fund has some 27.5 per cent invested in private equity and hedge funds, a further 22.5 per cent in regular equities and property, and the remainder in lower-risk fixed-interest assets. When in charge of Boots' pension fund, Mr Ralfe switched the entire fund into bonds.
Mr Ralfe said yesterday the strategy should be a worry to the Pensions Protection Fund, as it puts the fund at higher risk of default and might therefore fall into the fund's hands in six or more years.
"The asset allocation is aggressive even if it had a strong sponsor underwriting the investment risk," he said. "The PPF should not have to underwrite risky investment bets by a scheme with no proper sponsor."
However, Ros Altmann, an adviser to the fund, dismissed the suggestion that the asset allocation was high risk, saying it was a new and innovative way of aiming to match pension liabilities.
"He's wrong to say this is high risk," she said. "The investment consultant is incentivised to provide the performance we need to pay the pensions. If we make more than that, he does not make more money. It's a groundbreaking deal that we've done."
Dr Altmann added that switching an entire fund's portfolio into bonds would be the quickest way to send it heading towards the PPF.
Kvaerner sold its UK operations to their management for £1 last year, without making any meaningful additional contributions to the UK pension fund at the time of the deal.
But three months ago, the UK management struck a deal with the UK Pensions Regulator, allowing them to stop contributing to the fund in six years. Although the management has agreed to pay about £100m into the fund during that period, the current deficit is nearer £250m.
Members of the scheme, and their MPs, have been fighting to force the regulator to justify its controversial agreement with the new owners of Kvaerner's UK operations, now called TH Global.
However, the Act which created the Pensions Regulator deems it a criminal offence - punishable by up to two years in prison - to disclose details of confidential agreements between the regulator and other parties.
Mr Ralfe wants a change in the law and says the regulator should be subject to the same Freedom of Information regime as other government departments.