Deficits in FTSE 350 direct benefit (DB) pension schemes have fallen from £55bn to £39bn in the past year: a drop of 29%, according to research from Barnett Waddingham. As a result of improved funding conditions, the consultancy notes, 46% of FTSE 350 firms now run an accounting surplus – double the amount of five years ago – with one in 20 tipped to buy out their DB schemes in the next two years and 21% in the next five. However, some firms may move even quicker than that, as one in five could buy out their scheme by using less than 10% of the cash on their balance sheet.
DB deficits among energy and consumer goods firms experienced the largest year-on-year falls, dropping by a combined £10bn, with the proportion of schemes with a surplus varying considerably by sector. In finance, 69% of firms have a surplus on their DB schemes, compared with 57% in utilities. Just 14% of IT firms’ schemes are in the same position.
Increasing bond yields and improving asset prices have helped to improve the funding positions of FTSE 350 DB schemes. However, slowing mortality rate improvements have also had a significant impact. Latest projections have cut the average time to reach buyout by one year, compared to life expectancy estimates of five years ago. A further one-year fall in life expectancies over the next five years would mean that two-thirds of FTSE 350 schemes would hit the buyout mark by 2028, rather than the 54% currently projected.
Barnett Waddingham partner and head of corporate consulting Nick Griggs urged firms to focus on how to “navigate the remaining part of the journey to the endgame”. He explained: “DB scheme liabilities have long weighed on company balance sheets and, despite the measures taken to limit their cost, they remain a far greater drain on resources than their defined-contribution counterparts. DB schemes still account for two-thirds of FTSE 350 spending on pensions. Now is the time to take action and set a new approach.”
Brazil-based finance firm BTG Pactual – the largest investment bank in Latin America – has secured a seat on the organising committee of the Post-Trade Distributed Ledger (PTDL) Group. Comprised of 40 financial institutions and financial infrastructure players, the global think tank provides a forum in which its members can share data on the effective use of distributed ledger technology (DLT) in the post-trade sector. It is also dedicated to driving collaboration between participants on relevant initiatives.
In September last year, the PTDL Group was enfolded into the Global Blockchain Business Council (GBBC) – a move that instantly enhanced the clout of the Group, which counts among its members global banking brands, exchanges, custodians, asset managers, central securities depositories, payment systems, clearing houses, government agencies, sovereign wealth funds, regulators and central banks. BTG Pactual has joined an organising committee that already contained representatives from CLS Bank International, Janus Henderson, the London Stock Exchange Group (LSEG), Moscow Exchange, State Street and GBBC itself.
GBBC leader Sandra Ro said: “The PTDL organising committee includes some of the brightest industry minds, and we are pleased to welcome BTG Pactual into the fold. We look forward to collaborating and have no doubt that their strong industry position will be instrumental in furthering our efforts to realise and maximise the potential of DLTs.”
BTG Pactual associate partner and head of digital assets Andre Portilho added: “GBBC and PTDL Group are doing an amazing job pushing the industry forward. For BTG Pactual, this is a great opportunity to take part in the industry and work together with this dynamic group.”
Following eight consecutive years of rises, corporate debt in the UK has reached a new high of £443.2bn, according to Link Group UK’s latest Debt Monitor. Net debt has now risen by almost three-quarters since the low point of 2010/2011, when firms were still adjusting to the disruption caused by the financial crisis and subsequent recession. In the past year, borrowing among the Top 100 outpaced that of the small- and mid-caps – although the sharp net-debt rise at that elite level was mitigated by rising cash balances, which jumped by an eighth. Outside the Top 100, total debts were almost unchanged.
Link Group UK has taken a sanguine view of the findings, noting that while UK Plc’s debts have hit a new record, the measures of debt burden and debt sustainability are showing no signs of strain. Indeed, the firm said in a statement, “The core debt/equity, liabilities/assets and short-term/long-term debt ratios all improved slightly year-on-year. Meanwhile, though interest payments rose slightly as a percentage of operating profits (mainly owing to the lack of profit growth), they remained below the average for the past decade, thanks to the very low cost of finance at present.”
Link Market Services COO Michael Kempe said: “Borrowing will always rise over the long term because debt is almost always a cheaper means of raising capital for investment than equity. As companies grow, their capacity to take on new loans to finance their expansion increases – so, only considering UK Plc’s debt pile in isolation doesn’t tell the whole story. It’s really important to consider the burden of debt, and how sustainable it is as well. This is why the increase in borrowing in 2018/19 isn’t a cause for concern. It’s well backed by assets, and easily serviced at present by the profits companies are making.”
He added: “There are of course companies and sectors under strain, but the overall picture is reasonably comfortable. Over the next year we expect companies to maintain a cautious stance as long as uncertainties abound in the UK, and while the risks to the global economy rise. The trajectory of interest rates should provide some comfort, however, as central banks have sounded increasingly dovish of late.”
Private equity (PE) investment in the UK has fallen to its lowest level for more than five years, according to KPMG. In a 6 August statement, the Big Four auditor cited heightened economic and geopolitical uncertainty as the primary factors behind the slowdown. Following a study of UK PE transactions over the first half of 2019, KPMG concluded that deal volumes and value had both dropped below levels last seen in 2014. Between January and June this year, 384 deals completed with a combined value of £28.5bn – a tally well short of the 483 deals that closed in the first half of 2014, worth a total £31.5bn.
The H1 2019 figures also represent declines of 35% in volumes and 40% in values compared to the same period of last year. H1 2018 featured 594 UK deals with a combined value of £47bn. But while middle-market deals fell year-on-year from 273 in H1 2018 to 199 in the first half of this year, total deal value actually increased, from £17.69bn to £18.4bn.
KPMG head of M&A Jonathan Boyers said: “The slowdown in transaction activity witnessed during the first half of the year certainly doesn’t appear to be a result of investors pulling down the shutters while they wait for the economic and geopolitical headwinds to blow over. Rather, it is being driven by a reticence among vendors to bring assets to market. The truth is that PE [firms] remain incredibly hungry to invest, as evidenced by the fact that overall deal values, particularly in the UK’s middle market, remain strong.
“However, investors are currently eschewing those higher-risk transactions that they may have been willing to undertake a couple of years ago, when the market was steadier and they could price risk into both the deal and its structure. Instead, they are focusing on those higher-quality opportunities that are perhaps considered safer bets in the short term.”
Silicon Valley Bank (SVB) and FX management solutions provider Kantox have joined forces on a new fintech venture aimed at UK corporates. Under the arrangement, the partners will offer SVB’s UK-based corporate clients a suite of FX management software called Dynamic Hedging, developed by Kantox for firms with a particular business focus on digital innovation. The system fully automates key FX functions to create greater efficiencies for treasurers, enhancing visibility over FX exposure and hedging transactions in real time to mitigate risk and boost competitiveness – all without human intervention.
In an announcement, the partners noted that many of SVB clients’ core industries – including e-commerce, fintech, digital health and enterprise software – are both technology driven and international in nature. Given the high levels of digitisation among those firms, the software aims to automate currency management processes to raise efficiencies and reduce administrative burdens.
SVB UK president and EMEA head Erin Platts said: “FX is clearly an important focus for our many globally connected clients, as is working with a technology partner that understands the innovation economy and the sectors in which they operate. Through this partnership with Kantox, we aim to create genuine value for our clients by bringing automation and efficiency to their transactional FX management activities.”