Paternoster seeks valuation as Deutsche Bank eyes buyout deal

Pension firm likely to be merged with Abbey Life as shareholders seek to sell.
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The Independent Online

Paternoster, the pension buyout firm, has hired bankers to put a valuation on the company as investors look to sell their stakes in the business.

It is thought that investors, including the hedge fund Eton Park, are keen to offload their positions in the specialist insurer, which is predominantly owned by Deutsche Bank.

Other original investors in the business included the asset manager Jupiter, the broker Numis, and the hedge funds Polygon and CQS. It is not known whether they still retain stakes in Paternoster, which was founded with an initial £500m.

Sources close to the situation said that Deutsche Bank would most likely buy out investors and merge the Paternoster business into its Abbey Life insurance operation, which it bought from Lloyds in 2007.

In February, Deutsche Bank agreed a deal to hedge out the life expectancy risks associated with BMW's £3bn pension scheme liabilities, in one of the biggest longevity risk deals the market has seen.

Paternoster, a number of whose staff helped Deutsche Bank finalise the deal with BMW, was the first of the bulk annuity buyout firms to hit the market in 2006, completing a string of deals. However, the recession hit the group hard, forcing Paternoster to go into effective hibernation in 2009. It was forced to surrender its licence with the regulator, the Financial Services Authority, and stop writing new business amid concerns about the security of the corporate bonds it was holding on behalf of pensioners.

The firm manages assets worth more than £3bn for around 45,000 pensioners and in April published a better-than-expected set of results, prompting speculation that it could end its enforced slumber. At the time, the chief executive, Ed Jervis, said: "We have every expectation 2010 will see significant increases in volume in the traditional bulk annuity market and the rapidly developing longevity market."

During its ascent, Paternoster assembled one of the most impressive boards in the City, hiring Ron Sandler as chairman, Lord Leitch, and Howard Davies, former deputy governor of the Bank of England. It was founded by Mark Wood, former chief executive of Prudential's UK business, who stood down as from Paternoster last September following a reshuffle. A number of redundancies were also made.

A spokesman for Paternoster declined to comment.

The news comes as Pension Corporation, with more than £3bn in assets, continues to look for additional investment. The group, led by Edmund Truell, which has continued to win deals during the recession, including last year's buy-in of Cadbury's pension fund, has been seeking to raise up to £600m in new capital since last year.