Buffett is one of several investors who have expressed an interest in backing Wood, who has recruited broker Numis and corporate-finance specialist Hawkpoint Partners to set up the buyout fund.
Wood’s vehicle is one of a number of investment groups looking to profit from what experts say will become a lucrative new market. Entrepreneur Hugh Osmond, private-equity star Guy Hands and investment bank Goldman Sachs are all thought to be studying potential deals — with the former Marconi pension fund among the first to be targeted.
Wood is unlikely to complete any funding deal until after February 1, when he finally leaves the Pru, where he is head of UK operations. But it is understood he has received tentative approval from the Financial Services Authority. In recent weeks he and his advisers have toured City institutions drumming up interest in a buyout fund to break into the £1,000 billion industry. The goal is to buy up to 50 funds, with medium-sized companies preferred. Wood declined to comment on the identity of possible backers.
The buyout groups will offer hard-pressed finance directors the opportunity to offload the risk and cost of running a defined-benefit pension scheme. Many schemes now dwarf their sponsoring company, and directors are eager to move them off balance sheet.
Pension deficits have ballooned in recent years, with some estimates putting the combined FTSE 100 shortfall at more than £60 billion.
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Last week’s surge in the price of long-dated gilts — an investment sought by pension funds to provide long-term guaranteed income — turned the screw further. Pension experts say it could increase the FTSE 100 deficit by another £35 billion.
Until now, companies wanting out have had little choice other than to ask a big insurance group — in practice either the Pru or Legal & General — to buy bulk annuities for members.
But Wood is understood to have told potential backers that his group will buy up fully funded schemes, amalgamate them, and make money from the economies of scale that would be generated. Financial regulators will demand the plan carries a sufficient buffer to protect pensioners.
Some pension experts are sceptical, saying the buyout groups are, in effect, asking regulators to trust them to beat market investment returns. “It will be like creating a giant hedge fund,” said one leading actuary.