Those managing the BT pension schemes are investing funds in the debt of companies or those who are going into bankruptcy.

According to Frank Naylor, of Hermes Pension Fund who manages the schemes, ‘distressed debt’ offers a host of opportunities for investment.

Investing in bankruptcies and insolvencies should provide good returns for BT, despite the view that the outlook could be improving.

BT’s pension fund is said to be in a dire state, approaching the £11 billion deficit mark. They have cut their exposure to equity markets from 46% to 35% and instead are looking towards bonds and cash.

BT’s pension fund has increased its hold in leverage loans and mortgage backed securities and increased the distressed debt proportions from 3% to 4%.

It seems that the BT scheme is the first big player to invest in this particularly niche area.

As the times change, distressed debt now holds opportunity for investment, where a year ago it did not. Distressed debt is up 10.5% so far this year according to the Credit Suisse/ Tremont Hedge Fund index – so it is clear why BT are looking at this opportunities.

The deficit that BT has nearly doubled between March and June to £5.8 billion.

The 360,000 member scheme is up for a triennial review next spring, but fears are that by then the deficit will be nearer the £11 billion figure. BT has agreed to pay further £525 million into the fund for the next 3 years, regardless of what happens, but where will they be then?