2. Existing funding level volatility is too painful Source: IS estimates. Actual funding level based on actual market movements. Expected funding level based on actuarial valuation assumptions.
3. De-risking is simple in theory Risk relative to liabilities Return Efficient frontier Traditional 50/50 equity/bonds Remove liability volatility Diversify Potential 25% risk saving Potential 25% risk saving Source: IS estimates based on house assumptions. Slide for illustration purposes only.
4. So are the benefits of LDI matching funds Charts are for illustration purposes only. Start position 50 100 50 0 20 40 60 80 100 120 Assets Liabilities Gilts Equities Start position 50 100 50 0 20 40 60 80 100 120 Assets Liabilities LDI funds Equities Yields go down 1% 55 120 50 0 Assets Liabilities Gilts Equities Yields go down 1% 70 120 50 0 50 100 150 Assets Liabilities LDI funds Equities 0 50 100 150
5. But trustees have problems with timing the “lock-in” 2 months 6 weeks
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