Christopher Fildes

A hedge fund on your balance sheet, a cuckoo in your nest

A hedge fund on your balance sheet, a cuckoo in your nest

A Scottish accountant has his own way of injecting the fear of God into his hearers. This must be one reason why Douglas Flint is finance director of HSBC, and made him the natural choice when his fellow accountants at Cima wanted someone to lecture on pensions. On the day, he came right up to proof. A company running a pension scheme, he said, might as well have a hedge fund on its balance sheet. On the backs of the necks of his City audience, hairs could be seen rising. Hedge funds, they thought: arcane, inherently risky and possibly dodgy — what were their companies doing in this sort of business? Up to a quarter of their scheme’s value, they were told, could be at risk to changes in the value of its assets and liabilities in any year — and these assets might add up to half of their company’s stock market value. So a risk to the scheme was a risk to the company. A bank like HSBC would have thousands of full-time professionals managing risk all the time. The risks in a pension scheme might be assessed twice a year by a couple of guys at the back of the human resources department. By this time Douglas Flint had achieved his effect, and his hearers had started to think they were in the wrong business.

Pensions with wings

It can happen. It has happened to British Airways, which is now revealed as a pension provider with wings. After a bumpy flight, BA is back in profit, and on the face of things earning enough to resume its old habit of paying a dividend. No chance. BA’s pension scheme, looking after all those captains who retired at 55, is £1.4 billion in deficit. That is about half BA’s stock market value, which makes Douglas Flint’s point, or one of them.

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