Managing illiquid assets during a BPA transaction: sponsor loans and secondary market sales the most favoured options

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DB Trustee considerations for
managing illiquid assets

Unlocking value through secondary market sales

Secondary market sales were also an increasingly common strategy considered in 2024.  

More than half (55%) of DB Trustees considering buy-in or buy-out considered this option, up from a little more than one-third (36%) in 2023².  

This trend indicates growing opportunities within the secondary market, particularly for infrastructure, private credit, and property assets. 

By exploring a secondary market sale ahead of approaching insurers for a BPA transaction, Trustees gain greater certainty over their ability to pay the premium. This also eliminates the interest costs associated with other options.
 

Deferred premiums provide flexibility

Almost half (45%) of DB Trustees considered deferring part of their buy-out premium in 2024 – up from one-third (34%) in 2023.

Deferred premiums allow the portion of the premium related to the illiquid assets to be paid at an agreed later date. This enables either more time for a secondary market sale, or for the illiquid assets to roll off naturally.

This can allow schemes to better manage liquidity in line with the timing of their transaction.
 

Alternative de-risking strategies

Some DB Trustees explored alternative options to help manage any illiquid assets. These options included bank loans or passing assets in-specie to insurers. However, these were not as popular since they may introduce more complexity and potential delays.

Around a quarter of Trustees (27%) considered bank loans for liquidity. 

Meanwhile, around one-fifth (18%) looked at in-specie transfers – a sharp decline from nearly two-thirds (62%) in 2023.  

Insurers have varying appetite and capabilities for taking assets in-specie. Certain asset classes such as infrastructure equity, private equity or hedge fund investments are difficult to accommodate for most, due to regulatory constraints.
 

Starting early

Over the last 18 months, the industry’s experience in dealing with illiquid assets has evolved significantly.  

A broad range of liquidity solutions are available to help support scheme objectives – including sponsor loans and secondary market sales – with DB Trustees now able to make use of tried-and-tested market solutions.  

Schemes are increasingly arriving to market with solutions for their illiquid holdings already in progress. Trustees who begin these conversations early, working with their advisers and insurers to fully assess their assets, will be best positioned to meet their de-risking objectives.  

By considering all available options, Trustees can ensure that their decisions balance liquidity management and risk reduction in a cost-effective manner.

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¹Research conducted by Censuswide on behalf of Standard Life, between 7 October 2024 and 22 October 2024, among 50 DB Pension Scheme Trustees, of Schemes larger than £100 million.

²Research conducted by Censuswide on behalf of Standard Life, between 28 April 2023 and 9 May 2023, among 50 DB Pension Scheme Trustees, of Schemes larger than £100 million.