The Pensions Regulator’s new clearance guidance could potentially hinder corporate activity by forcing trustees to negotiate with their employers even in situations where the employer does intend to seek clearance, according to Hewitt. According to Chris Smith of Hewitt’s UK mergers, acquisitions and divestitures, believes that trustees – fearful of litigation or censure from the watchdog - might err on the side of caution and ask for more than is necessary. “The new guidance appears to be a response to many companies not seeking clearance, on the basis that it added little value for a lot of bureaucracy,” he said.

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Anthony Bolton, one of the UK’s most respected fund managers, believes that extensive scrutiny of company balance sheets is crucial to picking the right stock. Addressing a sell-out crowd of investment professionals, Bolton said that three-quarters of the mistakes he made during his career stemmed from companies with bad balance sheets. “I am always surprised by how broker notes don’t seem to highlight companies with weak balance sheets.” Bolton, who steeped down from managing assets at the end of last year – he ran Fidelity’s Special Situations Fund for 28 years – said another key was regular meeting with companies, which allowed him to hear directly from management. “I like openness. I like it when management has a balanced view – I have found that management that promise everything, generally don’t deliver.” Dubbed as silent assassin for his role in ousting Michael Green from ITV, he said even if after meetings with management, he had any queries about the company, the stock was ’no-go’. Commenting on the current financial market crisis, Bolton said that while, no-one yet knows the full contagion effects in debt markets, its impact was being felt in the real world with jobs being lost. But he said that before he stepped down in December last year, he had started buying into property and said he saw opportunities in banks: “I do see value in banks, certainly. The environment is getting worse in some ways and better in some other ways. But it is worth dipping your toe in the water.”

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 Global fund managers are increasingly looking at adopting the manager-of-manager style investment model which the Dutch call fiduciary management. Both Aviva Investors – the newly rebranded fund management business of Aviva – and UBS Global Asset Management are looking to go down the route of establishing themselves as the ‘one-stop-shop’ solution for pension fund clients, offering everything from investment advice and manager selection to the actual management of assets. Aviva Investors CEO Alain Dromer believes that the fund management industry will increasingly be demarcated by those that are global fiduciary managers and specialist niche boutiques that provide the alpha that clients are after. His is a view that is shared by some of the big names in the industry – Lindsay Tomlinson, vice-chairman of Barclays Global Investors in Europe agrees that the rapidly changing demands of clients will take many towards setting up fiduciary management structures. But what of the consultants who have traditionally dominated the arena of investment advice, at least in the UK? Fund managers are nonchalant. After all, consultants are now invading their territory by offering integrated consulting – again a manager-of-manager style investment structure. Dromer notes that it is dog-eat-dog world where ‘everybody is in competition with each other’, while Matthew Stemp, head of UBS AM in the UK, averred that investment consultants do not have the monopoly on ‘the right ideas’.

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State Street Global Advisors, which is reeling from the triple whammy of multiple lawsuits, performance issues and an exodus of key managers, could face even tougher times ahead. Worried consultants are warning of a deep disquiet among SSgA’s ranks and say more departures are on the cards. In December 2007 alone, the fund manager lost eight active quant equities portfolio managers and chief executive William Hunt stepped down in the first week of January to be temporarily replaced by James Phelan. Last month, the company also established a 618 mln usd reserve fund for legal costs associated with the underperformance of some of its fixed-income strategies. One consultant said: “We are watching the situation at SSgA very carefully and we understand that there may be some departures. Staff morale is not very good at the moment and although the bonus plan for 2008 has been finalised, people are still concerned about the lawsuits in the US and the departures of some key managers.”

F&C management today told analysts they were “indifferent” when it came to a choice between a management buyout and a merger with a rival fund management group. In a conference call to reporters, CEO Alain Grisay refused to rule out an MBO saying that F&C would look at “all options”. But what are its options? In the current market, the asset manager may find it well-nigh impossible to raise the necessary funds to engineer a management buyout of the firm. Private equity deals like those seen at Gartmore last year where TA Associates and Hellman & Friedman picked up stakes are a possibility. But that too is seen as unlikely given the drying up of big private equity deals thanks to the recent credit crunch. Potential suitors are also likely to be deterred by the hefty price they will have to pay up for the group– with a price earnings ratio of 20 times, compared to the sector which is currently at 12 times- F&C is trading a massive premium.As Samir Shah, an analyst at Landsbanki, puts it: “The price is so high compared to its peers that it would be very difficult to get appropriate synergies at the moment.” So the only real options the group may have are to be sold at lower levels or wait for markets to return to normality.

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The recent turmoil in the financial markets has once again underlined the fragile nature of pension fund finances. Buoyant equity markets and rising interest rates had pushed FTSE 100 pension schemes into a surplus of 15 bln stg at the end of last year. But the carnage in the equity markets last week wiped out more than 40 bln stg in pension scheme assets, equivalent to all the gains made in 2007. The volatility in pension scheme funding could result in companies looking to solve their pensions problems for good – one option could be opting to transfer pension schemes to a specialist buyout company. The growing number of entrants into this market has seen a significant reduction in buyout premiums – some estimate by as much as 10 pct. And although the buyout market has not taken off in the way that some commentators had predicted, 2008 could mark the turning point for the industry.

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