The Liquidity Kink Revisited

In 2022, we wrote about a feature of the pensions risk transfer market we termed ‘the liquidity kink’. A year on, many pension schemes can now afford to buy-out with an insurer, yet schemes still hold illiquid assets.

The liquidity kink is therefore a reality for many. We discuss how the market is evolving and revisit our checklist for dealing with illiquid assets.

In brief, the liquidity kink relates to the observation that a buy-out transaction typically requires a pension scheme to sell illiquid assets prior to transacting with an insurance company.

This paper looks at:

  • Pension scheme funding improvements and the demand for buy-out transactions.
  • The evolving appetite from insurers to hold illiquid assets.
  • What this means for pension schemes, especially those wanting to buy-out with an insurer and holding illiquid assets. We revisit a checklist of ways schemes can deal with illiquid assets.
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