ClaraPensions CEO tells PMP that illiquid allocations do not have to be a barrier for defined benefit pension schemes seeking to secure an insurer buyout
Defined benefit (DB) pension schemes have been caught between two opposing trends. On the one hand they are attracted to private markets by the prospect of higher risk-adjusted returns. On the other they are likely to be on a glidepath to buyout. Unfortunately, holding a large proportion of illiquid assets often makes them unattractive to insurers. ClaraPensions was set up to square this circle.
Clara is a DB pensions consolidator, or so-called superfund. It offers an intermediate step for sponsor-run schemes that ultimately plan to secure a buyout deal. When a scheme joins Clara it becomes its own dedicated section, with Clara taking responsibility for its liabilities. Clara then transitions its assets, over an approximately seven-year period, into a form ideal for an insurer buyout.
It is currently the only entity in the UK that has successfully been through The Pensions Regulator’s (TPR) superfund assessment process, although the Pensions Bill is set to simplify the gateway tests for transferring to superfunds so more are expected to be launched.
Clara has completed four transactions, varying in scale from £55 million to over £600 million, and its AuM totals £1.5 billion. “We have 20,000 members in the scheme across four employer sections – but we’d like that to be many hundreds of thousands,” says Simon True, CEO of Clara. “We are engaged with a healthy pipeline of employers, looking to settle £10 billion of liabilities.”
Clara operates a ‘bridge to buyout’ model. “The issue facing schemes as they move to buyout is they tend to get better pricing if they offer insurers a cash and gilts portfolio, rather than an eclectic assortment of illiquid assets insurers have to put haircuts on,” he says.
The vehicle will invest in many asset classes and use economies of scale to benefit all members. Being able to take in illiquid assets means we can take in a wider range of schemes.
Simon True, Clara
True previously worked at Phoenix Group, where he set up its bulk purchase annuity operation in 2017. “I’m acutely aware of what insurers need when schemes go to buyout. It’s obviously very important for us to maximise sections’ attractiveness when we take them to buyout,” he says.
Clara announced this year it would expand its private markets presence with a new vehicle, which will make new investments as well as facilitate deals with pension schemes that already have large exposures.
First transactions
Clara’s business model involves improving member outcomes by replacing the sponsor completely or working with them, retaining the covenant, and providing new capital. The new capital could either improve the security of benefits or uplift benefits, depending on the terms of the deal.
True says:“We effectively provide new ring-fenced capital, which is specifically allocated to a section. We don’t release this capital until we’ve taken the last member to buyout. We align our financial interests to getting the members into buyout as quickly as possible.”
Clara’s first transaction was for the £590 million Sears Retail Pension Scheme in November 2023. While the sponsor was not insolvent it no longer wanted to be involved. Clara provided £30 million of additional capital to materially improve the security of member benefits. Likewise, in its most recent transaction in June 2025, Clara improved the sponsor covenant of the Church Mission Society Pension Scheme, though in this case the sponsor will retain a link to the scheme.
Its second transaction, for the Debenhams Retirement Scheme in March 2024, solved a different problem. The scheme had entered Pension Protection Fund (PPF) assessment following the insolvency of the sponsor. Under PPF rules, the members were receiving limited benefits even though its funding level was sufficient for it to be classified as a PPF+ case.
“The question was whether an insurer could provide a solution with a very high proportion of promised benefits – and we were able to meet 100% of members benefits,” he says. “We took it out of PPF assessment, immediately restored everyone to full benefits and made back payments for the shortfall while it was in the PPF,” he says.
Private markets vehicle
Clara launched its dedicated private markets vehicle in May. It is initially focusing on private credit but the strategy will evolve as new schemes join.“In principle, schemes can bring inany asset class,” says True.
“The vehicle will invest in many asset classes and use economies of scale to benefit all members. Being able to take in illiquid assets means we can take in a wider range of schemes. If an asset fits into our core profile, we might not even require a haircut on its value,” he says.
“We put those assets into the private markets vehicle and, crucially, spread the exposures across all sponsor sections. This diversification of risk benefits all members.”
There are also second order benefits, he says. “We don’t have to realise assets’ value so we can manage them economically and run them off. We can sell if there is a favourable market but are not forced to sell in an unfavourable one. We can harvest the illiquidity premium more effectively because we are a long-term business.”
This is a core attribute of Clara’s model. Individual schemes may be a section in Clara for around seven years but, as schemes join and leave, it can make long-term investments irrespective of the sections’ glidepaths. “We can recycle investments across all existing and incoming sections,” he says.
Ideally, True says Clara’s strategic asset allocation would be roughly 30% in LDI, 35% in liquid credit and no more than 30% in illiquid assets.
The valuation process is analogous to a buyout provider’s assessment, but Clara’s structure often allows it to offer favourable terms. “We’re not constrained by matching adjustment requirements so we can be more open in the asset classes we take,” he says. “We fundamentally look at the economics of the asset.”
Clara has concentrated on ensuring the true economic value of assets is recognised when a scheme brings assets into the vehicle. “We must have fairness between the sections,” he says. “We need to be very careful when trading assets between sections, especially on the day schemes come in or leave.”
The benefit of trading internally is there is no bid-offer spread. “We don’t have the same frictional costs as we’re not selling the underlying assets. We try to share the benefits of scale with all sections. We effectively internally unitise illiquid assets and members don’t have to accept haircuts.”
Clara’s business model clearly benefits from economies of scale. “We live and breathe the benefits of diversification. Certain assets will inevitably go wrong at some point, no matter how strictly we manage risk. Sections want to limit their exposure to particular assets. To improve diversification, bigger is better.”
Increasing scale also increases purchasing power and access to opportunities. “Some asset classes require a minimum cheque size,” he notes.
Beyond integrating incoming assets, the private markets vehicle will “absolutely” make new investments, says True. “That’s going to be the core of what we do. We’re not getting as many illiquid assets as we want, so we are net buyers. But we’re scaling up slowly and soberly. Direct lending is the most obvious place to begin as our trustees, management team and backers are very familiar with it – and we like the risk-adjusted returns.”
Clara is assessing other asset classes including working capital finance, infrastructure debt and equity, and commercial real estate debt. “We can’t go into every asset class on day one but it’s a matter of time. We just need to demonstrate we understand the risks and can manage the assets properly,” he adds.
Clara has two sources of support on the investment side; Van Lanschot Kempen Investment Management (VLK) provides fiduciary management and Sixth Street provides outsourced CIO services. “VLK proactively provides due diligence for illiquid assets, before we do a more granular review with Sixth Street,” says True. “We have access to deep technical knowledge and can leverage that very quickly.”
Market potential
Clara’s addressable market consists of DB pension schemes that are not well financed enough to go directly to buyout but sufficiently capitalised for it to be a realistic possibility, while the creation of its private markets vehicle has expanded its potential universe of schemes.
True estimates there are c.£1.4 trillion of assets in around 5,000 UK DB pension schemes. “When we segment the market and look at those that fall into our sweetspot, our addressable market today is around £250 billion. And many other less-well-funded schemes will ultimately fall into our addressable market,” says True.
“Every scheme has a unique history, funding position and portfolio so we’re keen to be pragmatic. We’re very willing to roll our sleeves up to create a solution that preserves the value of their assets.”
True says the Clara model reduces the time and planning required to prepare for buyout. “If you have illiquid assets and want a buyout, you would either be a forced seller or suffer a haircut from the insurer. Neither option would deliver the best value. While we can’t take every asset at face value, we tend to offer considerably better value than the other options.”
In unusual cases, a prospective scheme may not have a suitable portfolio. “We try to establish that quickly, so the scheme doesn’t incur any unnecessary costs,” says True.
Clara operates under the superfund regime, which is based on a capital model similar to Solvency II. This means holding riskier assets requires holding more capital. “We always look to optimise the return on the assets – but also against the capital that we need to hold against them,” he notes.
Solvency UK has two second order impacts according to True. Firstly, as insurers need to hold less capital, pricing has tended to improve. Secondly, it has changed how attractive certain asset classes are to insurers.
While Clara is the only regulated superfund, others are going through the regulatory process. “Competition is inevitable – it’s a validation of the benefits of consolidation,” says True.
Clara remains a few years away from its first buyout, perhaps in 2029. “We haven’t decided how to run that process but we would go to market with well-constructed sections, clean member data, clean benefit specification and a clean set of assets. We will speak to a lot of insurers to ensure we get the best possible price,” he says. “There’s a lot for us to play for.”
