Pensions World

Trustees are going to have to get used to presenting their side of the story as they come under greater scrutiny warns Anthony Hilton, Evening Standard

The near collapse of the highly geared Southern Cross care homes business a few weeks ago brought a torrent of abuse down on the head of Blackstone, the private equity group which had put the business together in its current form, and turned a hostile spotlight on the private equity sector as a whole. Separate articles then went on to document the woes of other over-geared businesses: Focus, the DIY chain, and Punch in the pubs sector, while the travails of Guy Hands and Terra Firma’s disastrous investment in EMI has been one of the year’s longest running stories.

But more by luck than judgment no journalists have investigated Blackstone or the other private equity houses to identify the investors in their funds who were the ultimate beneficiaries of the financial engineering. Had any diligent journalist done so they would most likely have found several investors were pension schemes.

Stewardship

Next time the press could be more tenacious. Next time a private equity house or hedge fund appears to have blown up a business, particularly if it is a household name, someone surely will ask if it was an appropriate investment for the pension scheme. The trustees will need to have an answer and one which satisfies their members and well as the media.

Nor is this just an issue with private equity. Some hedge fund behaviours are also likely to attract hostile scrutiny, particularly among those event driven funds which seek to secure favourable terms for themselves at the expense of everyone else in corporate restructurings and as a result sometimes force firms into unnecessary bankruptcy.

But it is wider even than that. The new stewardship code produced by the Financial Reporting Council urges pension schemes to take an interest in the shares they own and to use their influence to make sure that their agents, the fund management companies, vote regularly and engage with companies so as to be “responsible owners.”

Public position

It follows from this that there will be a growing number of occasions in the months and years to come when trustees will be asked for their view on a corporate controversy where their scheme happens to be a significant shareholder. And the traditional defence that “it is nothing to do with me, guv, I am only a trustee” may no longer cut the mustard.

Being attacked in the press is unnerving for anyone but particularly so for a pension trustee – even when they are used to press intrusion in the day job. Trustee work is technical and sometimes arcane, private and, for the most part, unpaid. It is often a struggle even to engage members, so it is doubly a shock when interest comes from outside and is hostile. Trustees know better than to expect many thanks for what they do, but by the same token they do not expect outsiders to put the boot in without warning. And when it happens they too often find themselves trapped in the headlights and with no idea how to present their side of the story.

This is going to have to change, particularly in the case of the larger schemes. Some have, of course, already demonstrated an ability to put a story across, starting with David Norgrove, later the Pensions Regulator, but before that the chair of the Marks & Spencer trustees, who went public with his reservations about a highly geared bid proposal from rival retailer Sir Philip Green. And since then in several cases of corporate activity trustees have been obliged to take a public position. But these have always been on issues to do with their own schemes and the direct interests of their members. This is not the same thing as being asked to comment on an issue through what, in effect, is an accident of ownership and where the trustee really has no direct involvement or knowledge.

It will take some getting used to.