Three Local Government Pension Scheme funds have lost up to £5m as a result of direct investments with Carillion, according to an assessment of the impact of the company’s liquidation.
The outsourcing and construction firm went bust in January after the firm, its lenders and the government failed to reach agreement on a rescue deal.
A report by the LGPS Advisory Board this week concluded that the hit to local authority pension schemes was minimal.
It said: “Only three LGPS funds had assets directly invested with Carillion at the time of its liquidation. Based on the five-year average and high share prices, the total losses are estimated at £3m to £5m.”
It is understood that the total assets held by the three funds stand at more than £9bn, putting the loss caused by Carillion’s collapse at a maximum of 0.56% of total assets.
Shortly after the collapse, one of the three funds, Northamptonshire Pension Fund, said it had held 450,000 shares in Carillion.
Nigel Stevenson, the service director for finance, procurement and improvement at Northamptonshire, said: “As at the most recent valuation on 30 September 2017 these shares were valued at £229,500.”
The advisory board also said that LGPS funds may also have had some indirect exposure via index-tracking passive funds.
It said these losses would be very difficult to quantify, but that “any such losses would have been mitigated by Carillion falling out of the FTSE 250 in August 2017”.
In addition, some fund managers used by LGPS funds had short positions on Carillion, and the advisory board’s secretariat is still investigating if any funds had stock lent for this purpose.
The report found that 13 LGPS funds had a total of 28 “admission agreements” with Carillion. Such agreements allow private contractors, to which former local government employees transfer under TUPE regulations, can participate in the scheme.
In total, the 28 admission agreements with Carillion are £11.4m in credit, although one fund will see itself lumbered with an aggregate deficit of £61,000.
It is understood Carillion made all of its pension contributions to these funds in December, but no payments in January.
One of the funds, with seven admission agreements, had a total surplus of £6m.
Jeff Houston, head of pensions at the Local Government Association, said: “Although losing Carillion is a hit on funds, in this case the losses seem to have been very small indeed.
“On the liability side, it looks like we have been fortunate in the majority of cases, where there is no liability passed over.”
Barry McKay, head of LGPS actuarial at pension adviser Hymans Robertson, said: “This is an example of good risk management by the LGPS funds but serves as a reminder that the LGPS should keep a close eye on employer covenants, and carry out risk assessment and bond reviews to mitigate these risks.”
The board report added that if any staff over 55 are made redundant as part of the Carillion collapse, the pension strain cost would fall on the outsourcing employers as joint signatory to admission agreements, “unless there are other arrangements such as bonds or guarantees in place”.
In February, Room151 reported that Leeds City Council recovered £450,000 from an insolvency bond it put in place last year before awarding a cycle route contract with the collapsed contractor.
