Robin Ellison appearing before MPs yesterdayThis episode occurred during Carillion’s final days as a going concern. Ellison said that even then the trustees were led to believe by Carillion executives that if immediate cash could be raised, the business would survive long enough to be restructured.Contribution schedule questionedBut MPs questioned why the trustees had ever allowed the sponsor to pause contributions in August last year, given the scheme was still in deficit. They referred to a 2012 report by one of the trustees’ advisers, Gazelle, recommending that they demand more from the sponsor, including influence over new securities issued by Carillion.Gazelle said at the time: “Carillion has historically prioritised other demands on capital ahead of deficit reduction in order to grow earnings and support the share price.”Ellison emphasised that the trustees had pursued means of greater security “with inadequate results”. He added that the board had asked for more contributions after nearly every valuation. “We did not just roll over and get our tummies tickled when the company paused contributions.”Robin Ellison“You will see [from correspondence] that negotiations went on in a pretty tough fashion: for the first two valuations we didn’t come to formal agreement and we had to take what the company would pay,” Ellison explained. “The powers of pension fund trustees are limited – we can’t enforce a demand for money.”The trustee chair also emphasised that “there wasn’t much in the company that could be pledged” as security against the deferred contributions.“We did not just roll over and get our tummies tickled when the company paused contributions,” Ellison said. “There were heavy interest payments for the delay and the promise of a bullet repayment seven months later.”Asked whether he’d thought about resigning, Ellison replied that resigning would not have solved anything.TPR – which will appear before the committee at a later date – can compel greater contributions. When pressed by Frank Field MP, co-chair of the committee, Ellison said he had not asked the regulator to make this specific demand, instead asking the regulator to use its judgement as to the best course of action. TPR will have to explain why it sat in on board meetings of the Carillion trustees for years without taking further action against the sponsor.MPs pointed to the £376m paid to shareholders in dividends by Carillion between 2012 and 2016. When asked why the money didn’t go to the pension fund, Ellison pointed out that The Pensions Regulator generally accepted pension contributions worth 16%-18% of dividends. In Carillion’s case, pension contributions had been in the order of 60% of dividends.Carillion’s annual report for 2016 detailed that it had paid £393.7m to shareholders since 2012, while making deficit contributions to the DB schemes of £209.4m in total. Since last year, TPR has increased its emphasis on companies striking a balance between dividend payments and pension scheme deficit reduction payments.Members of the Work and Pensions Select Committee and the Business, Energy and Industrial Strategy Select Committee are conducting a joint inquiry into the collapse of Carillion.A number of the engineering conglomerate’s DB pension funds are now being assessed for entry into the Pension Protection Fund.Robin Ellison spoke to IPE in March 2017 about the Carillion schemes’ investment strategy. He added that The Pensions Regulator (TPR) had also stood up to potential creditors of the company who had demanded all loans go into the business rather than the pension fund. The chairman of Carillion Pension Trustees has rebutted claims by politicians that the trustee board let the failed contractor “wriggle out” of pension contributions.Carillion went into compulsory liquidation on 15 January with a pensions deficit in excess of £800m (€910m) but just £29m in cash.Robin Ellison, chair of the trustees, yesterday told a parliamentary committee investigating Carillion’s collapse that the trustee board had pushed the construction and engineering contractor as hard as it could.“We did our best with the information at our disposal,” he said, adding that it was a balancing act between getting as much money for the pension scheme as possible without driving the sponsor out of business. “I don’t think there is anything more we could have done to pursue higher contributions.”
European pension funds are prioritising risk management while also squeezing as much out of their assets as possible in 2019, according to an IPE survey.The poll of 123 asset owners found that almost half (48.8%) considered risk management as their top priority this year. More than a third (39%) had “maximising return” at the top of their agenda.Pension fund objectives for 2019Chart Maker As to what risks they would be managing, it was evident that investors were particularly wary of a potential downturn in asset prices: two thirds (65.8%) of respondents said the end of the cycle was their top concern for 2019.Given the collapse in equity markets in the fourth quarter of 2018, it is hardly surprising this risk was front of mind. The S&P 500 fell by 14.3% in the last three months of the year, while the MSCI World index fell by 13.9%, according to Capital IQ.Already, a number of pension funds in the Netherlands and Denmark have reported losses for the fourth quarter – in many cases wiping out gains made over the rest of 2018.Which trends/issues are you most concerned about?Chart MakerUnsurprisingly, with Brexit unsolved and trade wars rumbling on, geopolitical risk was also a top concern for more than half (58.3%) of investors.While a little over a third (37.5%) of investors cited climate change as their biggest concern, far more stated that ESG and impact investing strategies were top of their asset class research priorities. More than half (57.4%) selected this option, while a quarter (26.2%) said they were most interested in learning more about green bonds and climate finance.Which asset classes/strategies are top of your agenda to learn about?Chart MakerIPE surveyed 123 pension funds in December 2018, asking for the objectives, concerns, and asset class priorities for the year ahead.