The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Liam Proud

LONDON, July 31 (Reuters Breakingviews) - While many in the City of London are fretting about a lack of inward investment, there’s one British financial product that North Americans can’t get enough of: pensions. A group affiliated with Apollo Global Management APO.N recently paid 5.7 billion pounds ($7.5 billion) for a leading player in the market for taking over retirement schemes. An arm of Canada’s sprawling Brookfield Corporation on Thursday agreed a 2.4-billion-pound deal for another, Just Group JUSTJ.L. There’s sound logic behind the seemingly manic rush.

The backdrop is that many UK employers, having largely closed their historic defined-benefit pension schemes, are sitting on over 1 trillion pounds of retirement obligations and corresponding financial assets. Managing these schemes is costly and not the core competence for most companies, prompting them to outsource the job to specialists. Some of the leading players in this red-hot “pension risk transfer” market include insurer Legal & General, privately held Rothesay, Just Group and Pension Insurance Corporation $(PIC.AU)$, the business that Apollo’s European partner Athora bought four weeks ago.

Brookfield is paying a high price. Its cash offer implies a 75% premium above Wednesday’s closing level and is equal to 1.1 times a key measure of the target’s equity. That compares with a roughly equivalent valuation multiple of around 1.05 in the recent Apollo-linked PIC deal, which itself looked steep. Analysts reckon Just Group will produce almost 140 million pounds of earnings in 2027, according to forecasts gathered by Visible Alpha. That would imply a humdrum 6% return on investment for Brookfield Wealth Solutions – the unit of Bruce Flatt’s wider empire that is doing the deal, and which has hitherto focused on the racy U.S. retail annuity market.

There are two main ways Flatt’s insurance team can juice the return. The first is to steer Just Group’s existing investments into better opportunities. Private assets – mostly mortgages, infrastructure and real-estate debt – accounted for 45% of the company’s 27-billion-pound asset portfolio at the end of last year. Increasing that percentage is not the plan, according to a person familiar with the matter, since doing so could increase capital requirements. But one of the world’s biggest asset managers should be able to find more lucrative opportunities than a middling UK player like Just Group, for example data centres or renewable power investments. The same goes for Apollo vis-à-vis PIC.

Second, both giants have the capital to keep funding future growth, which seems necessary since employers are outsourcing tens of billions of pounds in retirement liabilities each year. Stumping up the equity for new deals will be easier for a large player like Brookfield than a mid-sized publicly listed group, enabling faster growth. About 80% of Britain’s defined-benefit pensions were yet to be outsourced as of December 2024, according to a Just Group presentation. That means there’s room for more than one North American giant to flourish.

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CONTEXT NEWS

Brookfield Wealth Solutions, controlled by Canadian asset manager Brookfield Corporation, on July 31 said that it had agreed to buy UK-listed Just Group for 220 pence per share in cash, implying an overall equity value of 2.4 billion pounds ($3.2 billion).

The price is 75% higher than the target’s July 30 closing price and equates to a valuation multiple of 1.1 times unrestricted tier 1 capital, which is a key industry measure of equity.

Just Group is a leading player in the pension risk transfer market, in which insurers take over responsibility for managing corporate retiree schemes. Its shares rose 68% to 212 pence as of 0853 GMT on July 31.

(Editing by Neil Unmack; Production by Oliver Taslic)

((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))