Pensions Regulator oversteps the mark

01 September 2008

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The news that Duke Street Capital has been forced by the Pensions Regulator to inject ТЃ8m into the defined benefit scheme of DIY retailer Focus more than a year after the private equity firm sold the business should confirm the worst fears of the industry. When the government acted to enhance the power of the regulator earlier this year it emboldened a body that already had enough tools at its disposal to punish errant company owners it judged were abusing their responsibility as pension fund trustees. The regulator confirmed that the action taken in respect of Focus was made possible by powers granted to it under the Pensions Act 2004 and not by the enhanced powers bestowed upon it by the government earlier this year. Requiring former owners to inject money into pension schemes retroactively is a significant power and it must be reasonably asked whether additional powers are necessary and proportionate to the potential for abuse

Confirmation that enhanced pension regulation is deterring private equity from investing came when a leading figure in the private equity industry told me that his firm would now avoid investing in businesses with a defined salary pension scheme because of the increasingly aggressive attitude shown by the regulator. Others are no doubt similarly inclined and who can blame them? It is a considerable risk to invest in a company when that investment is partially in the hands of an unelected and secretive body which can demand an investor commit millions more to a deal than it had originally intended, and it is LPs (possibly other pension funds) that end up on the hook for the cash. Of course, there will be cases where the regulator will have good reason to act. Yet in the case of Focus the regulator told me that it was unlikely they would be publishing the reasons for their decision, leaving interested parties and stakeholders without the ability to debate the merits of the decision. At a time when the government is calling for greater transparency from private equity and private equity is co-operating, it would be reasonable to expect this spirit of openness to be reciprocated.

Unquote" is also doing its bit for transparency. Starting this issue we will be introducing deal bands to all deals to improve the quality of our data. Where the deal value has not been disclosed we will be asking investors for an indicative range. Requests have been well-received so far and we ask that you help us with this initiative to improve the unquote" offering for all.

Yours sincerely,

Nathan Williams

Editor, unquote"

Tel: +44 20 7004 7449

nathan.williams@incisivemedia.com.