Our Asset Management Training Team comes together to deliver Corporate Solutions.
Defined benefit investment strategies
must provide the growth needed to improve the funding level, the hedging needed to protect against risks and, in some cases, the ability to transfer the risk entirely by entering into a buy-in or buy-out arrangement.
We provide training about some of the largest investment managers of UK pension scheme assets offering investment solutions at every stage of your scheme’s life cycle. We focus on how we can help pension schemes to meet their ultimate goal – ensuring that they can pay their member’s pensions.
We aim to help you:
- Make better use of scheme assets: Diversify the growth allocation
- Enjoy a smoother journey: Better match assets and liabilities
- Prepare for the endgame: Reduce risk and save costs as the endgame approaches
Liability Driven Investment.
A liability-driven investment (LDI) solution enables you to retain your allocation to growth, while reducing risk. These include Pooled and segregated investment solutions that are specifically designed to hedge interest rate and inflation risk.
Every defined benefit pension scheme eventually needs to think about its endgame, when it considers how best to use its assets to provide member benefits. Schemes are increasingly considering a ‘buy-out’ solution, whereby they pay an insurance company to take on the scheme liabilities and pay out member benefits. Allowing an insurance company to take on the scheme risk, allow the trustees to reduce the resources dedicated to managing the scheme.
Preparing for buy-out.
Schemes considering a full or partial buy-out, can prepare for the endgame by using a ‘buy-out aware’ investment strategy.
Such an investment strategy targets changes in buy-out pricing, with the ultimate aim of reducing buy-out costs. Building a buy-out aware portfolio implies investing in assets that are similar to the assets that a typical insurance company would use to price a buy-out. In this way, as buy-out pricing changes, a scheme’s assets should move in a similar way.
The UK’s defined contribution (DC) pension market is undergoing major changes:
- Growth: The introduction of auto-enrolment, coupled with further closures in defined benefit schemes, is driving member growth
- Regulation: The introduction of ‘Freedom and Choice’ in 2014 Budget means that from 6 April 2015 buying an annuity is no longer the automatic default retirement option
- Governance: The Pensions Regulator is increasingly focused on the role of DC pension scheme trustees and DC scheme governance.
An overview of the pension revolution
Growth / accumulation phase: DC schemes can use DC-specific Multi-asset funds or create their own, bespoke version using a comprehensive range of index funds.
De-risking: For members still interested in annuities, Pre-Retirement Funds aim to protect retirement income by broadly reflecting changing annuity rates.
Income drawdown: Retirement Income Multi-Asset Funds are designed for investors that are targeting a drawdown solution in retirement.
A flexible retirement income solution: Pathway Funds can be tailored ‘to and through’ investment strategies for DC investors. Designed following the ‘Freedom and choice’ pension reforms, they aim to provide a flexible path to building a retirement income that is aligned with individual goals.
Multi-Asset funds provide diversified exposure to a broad range of markets. By investing in a range of asset classes, countries, sectors and currencies, investors can avoid having a concentrated exposure to any one driver of returns.
Index funds offer investors low-cost access to a wide variety of different strategies and asset classes, with the added benefits of simplicity, liquidity and ease of implementation.
The government’s 'Freedom and choice' pension reforms mean that finding the right solution to help DC scheme members invest for their entire journey to and through retirement is now more crucial than ever.
The new rules mean that a member can now buy an annuity, take their pension pot as cash or look at some sort of drawdown option. Different options will suit different members – primarily depending on their risk appetite and size of pension pot.
Following the pension reforms, income drawdown solutions have become a compelling option for DC investors looking for an alternative to buying an annuity. However, investors will still need their investment to provide a sustainable level of income over their retirement.
It is therefore important that an income drawdown solution also generates enough long-term investment growth up to and during retirement.
A DC member may buy an annuity to provide a fixed and pre-set annual income. Our in-depth experience in the areas of annuity fund regulation, pricing and investment strategies means we are well placed to understand and provide solutions to help those approaching retirement.
Fixed income management
Fixed income is a vital element of any institutional investor’s portfolio.
Fixed income markets are inefficient in risk pricing. Investors can exploit opportunities both within and across markets. An understanding of the macroeconomic environment should drive investment thinking and portfolio positioning. Risk management is key to portfolio construction and management
An approach for all market conditions - A macro-driven thematic investment process is specifically designed to position and therefore perform during all market conditions, with no in-built style biases
Risk awareness - By understanding the global credit market and the wide variety of potential risks we have performed strongly during challenging market conditions
Fixed income strategies.
- Exposure to subordinated financials
- Absolute return strategies (no market risks in the benchmark)
- High alpha strategies
Buy and Maintain.
Buy and maintain strategies are increasingly being used by investors looking beyond traditional credit exposure, whether as part of a liability-driven investment strategy or simply as a different approach to credit management.
Investors seek diversified, global investment grade credit exposure while reducing the drawbacks of being constrained to market capitalisation benchmarks.
Multi-strategy credit strategies are particularly useful for clients seeking a dynamically managed source of income and growth in a low-yield environment, diversifying their return-seeking portfolio and complementing other liability-aware fixed income allocations.
Such strategies provide flexibility to form part of an overall solution or as part of a reduced-risk growth portfolio. Central to the strategy is capital preservation and limitation of drawdowns.
Downside risk protection
Target growth while limiting downside risks providing income and sustainable cash flows lay an increasingly important role as part of objective-driven strategies.
Flexibility to boost returns
Flexibility to source global investment opportunities, unconstrained by an index, throughout all market conditions is highly desirable. Favourable return opportunities versus benchmark-constrained products, regardless of the future course of interest rates.
Diversified alpha sources
The strategy provides access to diversified sources of returns across a wide range of securities including investment grade, high yield and emerging market debt. It leverages our specialist expertise in all of these distinct areas.
Active investment grade fixed income:
- Global Credit managed against a sterling benchmark (Core Plus)
- Global Credit managed against a global benchmark
- Libor Plus and Libor Plus High Alpha
- European investment grade fixed income:
- Euro Corporate All Stocks
- Euro Corporate Long Dated
- Euro Corporate Non – Financial
- Euro Corporate Higher Alpha
- Understanding European markets
New borrowers within European markets have taken advantage of the single currency creating new investment opportunities. At the same time, the way investors look at risk is increasingly linked to country exposure and sovereign credit.
This means that the Euro credit market offers a diversified range of sectors, issuers, countries and bond structures.
Understanding high yield markets.
More investors are looking at high yield bonds due to a number of unique attributes:
Quality: The high yield universe includes a broad range of companies, with many areas of the market posting low average default rates. The universe includes well-known names such as Aston Martin, House of Fraser and Hertz.
Yield: In today’s low interest rate environment, the income provided by investing in high yield bonds can be very attractive and helps support total returns in a rising yield environment.
A macro-led approach: understanding the macroeconomic environment should drive investment thinking and portfolio positioning. By understanding the global economy, and particularly recognising where our expectations differ from the consensus, we can add value in good times and bad.
Adopting a global approach to high yield investing widens the opportunity to enhance risk-adjusted returns. Adjusting how much risk to take and where in the world to take it, helps performance throughout various market conditions.
- Established and effective cash management tools - Liquidity funds are tools for managing short-term cash. These funds are popular amongst a wide range of investors from treasurers and corporate pension schemes to local authorities, charities and insurance companies, as an alternative to cash accounts and deposits.
- Diversification within strict investment parameters - Liquidity funds diversify investors’ cash holdings across a wide range of high quality money market instruments via an investment vehicle which is managed within strict and transparent guidelines.
- Daily liquidity - Invest or withdraw cash daily and closely follow the performance of the investments.
- Competitive returns - By actively managing a large pool of diversified and liquid assets, liquidity funds aim to achieve a stable and competitive return relative to bank deposits.
- Advantages of scale - Investing in a pooled fund means investors receive the advantages of scale, professional resources and active asset management expertise that may otherwise be uneconomical to achieve.
Multi-asset funds provide investors with a diversified exposure to a broad range of markets. By investing in a range of asset classes, countries, sectors and currencies, investors can avoid having a concentrated exposure to any one type of asset or driver of returns.
Risk management is an essential element of multi-asset investing. Risk management into funds through a combination of advanced modelling techniques, investment judgement and oversight from independent risk teams. The aims are to create portfolios that can perform through a variety of market conditions and that withstand or reduce the impact of negative market events, responding to investors that prefer a smoother ride to achieving their goals.
Investors are attracted to property investment for a number of reasons, not least the attractive yield, inflation protection and tangible security that these assets can offer.
With a return stream that is primarily driven by rental income, property investment offers the opportunity for active management to enhance value through initiatives such as refurbishment and asset reposition, as well as lease negotiations and restructuring.
Using property as part of a broad portfolio asset allocation mix has the potential to improve the risk-return benefits for clients.