Two major UK companies have announced plans to allocate up to five per cent of their assets to private equity in the light of the ongoing slump in the public markets.
UK supermarket chain J Sainsbury and the UK unit of consumer products group Kimberly Clark are to propose the introduction of a private equity allocation to their investment committees as both companies seek to bridge the gap created by the steep fall in share prices.
Sainsbury, which has a £2.5bn pension fund, today announced a number of changes to its current pension structure to deal with its funding deficit, including an increase in contributions to the final salary scheme from 4.25 per cent to seven per cent.
“We're one of the companies in the pensions black hole,” said Angus Clark, head of the Sainsbury pension fund investment committee, speaking to Bloomberg. “We're looking at private equity as a way to gain positive returns.” According to Clark, the committee has yet to decide whether it will make direct commitments or commitments to funds of funds. A final decision on an allocation of up to five per cent will be made next month.
Also considering a similar allocation is the UK division of Kimberly Clark, which currently manages a £280m fund. Mike O'Hanlon, a trustee of the plan, said the move was part of a strategy to broaden its investment base.
Speaking at the “Allocation Strategies” panel discussion at the recent EVCA International Investors' Conference in Geneva, Peter Gale, manager of the Royal Bank of Scotland £10bn staff pension fund, said that investors should continue to focus on both the private and public equity allocations rather than bonds in order to achieve superior returns. The RBS staff pension fund currently allocates in excess of five per cent of its assets to the asset class, although Gale said this would be reduced to around five per cent.