Short-Term Crisis or Long-Term Regime Change? Implications for Strategic Asset Allocation


Published on

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Short-Term Crisis or Long-Term Regime Change? Implications for Strategic Asset Allocation

  1. 1. Private & Confidential Fidelity 10 October 2012Robert GardnerFidelity Institutional Conference 2012Short-Term Crisis or Long-Term RegimeChange? Implications for Strategic AssetAllocation1
  2. 2. Private & Confidential Fidelity 10 October 2012Our Philosophy2
  3. 3. Private & Confidential Fidelity 10 October 2012 37 Steps to Full Funding
  4. 4. Private & Confidential Fidelity 10 October 2012Setting Clear Goals and Objectives:The Pensions Risk Management Framework (PRMF)4Source: Redington.Objective Performance Indicators Actual PerformanceFunding strategyTo reach full fundingby 2020Funding ratio on IAS19 basis 85%Funding ratio on Gilts Flat basis 70%Expected returns inexcess of requiredreturnsExpected returns from currentinvestment strategyGilts + 300bpsRisk target1-year 1-in-20minimum worst-caseloss should notexceed 15% ofliabilities1-year 95% Value-at-Risk >[15]%Aspirational targetTo be fully inflationand interest ratehedgedNominal hedge ratio <[80]%Inflation hedge ratio <[80]%Scheme constraintLiquidity & collateralrequirementsLiquidity: cash held sufficient to paytwo months of benefits£50mCollateral: available eligible collateralsufficient to meet potential collateralcalls on derivative positions>£500m
  5. 5. Private & Confidential Fidelity 10 October 2012The Flight Plan5
  6. 6. Private & Confidential Fidelity 10 October 2012LDI Hub6
  7. 7. Private & Confidential Fidelity 10 October 2012 7Liability Driven Investment30-Year Gilt Real Yield- TitleBoots Pension Fund shifts to 100%AAA long-dated sterling bondallocationDMO issues 50-year inflation-linked giltF&C launches equity-linked pooledbond fundFriends Provident implements firstderivative-based inflation andinterest rate hedgeBarclays Global Investorslaunches segregated and pooledfunds for LDIInflation concerns elevated after oilprice hits record of $145 per barrelCollapse of Lehman Brothers,traditional gilt/swap spread inverts
  8. 8. Private & Confidential Fidelity 10 October 2012Credit Spread and Gilt Yield Evolution8-1000100200300400500600bpsSterling IG 15+ Corporate Spread 20-Year Gilt Real Yield IG Spread + Real Yield
  9. 9. Private & Confidential Fidelity 10 October 2012The Pessimist - The Optimist -The Realist9
  10. 10. Private & Confidential Fidelity 10 October 201213-15 Mallow Street London EC1Y 8RD Telephone : +44 (0) 20 7250 3331 GardnerFounder & Co-CEODirect Line: 020 3326 Management Firmof the Year (2011, 2012)Pension Consultant of theYear 2012DisclaimerFor professional investors only. Not suitable forprivate customers.The information herein was obtained from varioussources. We do not guarantee every aspect of itsaccuracy. The information is for your privateinformation and is for discussion purposes only. Avariety of market factors and assumptions mayaffect this analysis, and this analysis does not reflectall possible loss scenarios. There is no certainty thatthe parameters and assumptions used in thisanalysis can be duplicated with actual trades. Anyhistorical exchange rates, interest rates or otherreference rates or prices which appear above arenot necessarily indicative of future exchange rates,interest rates, or other reference rates or prices.Neither the information, recommendations oropinions expressed herein constitutes an offer to buyor sell any securities, futures, options, or investmentproducts on your behalf. Unless otherwise stated,any pricing information in this message is indicativeonly, is subject to change and is not an offer totransact. Where relevant, the price quoted isexclusive of tax and delivery costs. Any reference tothe terms of executed transactions should be treatedas preliminary and subject to further due diligence .Please note, the accurate calculation of the liabilityprofile used as the basis for implementing anycapital markets transactions is the sole responsibilityof the Trustees actuarial advisors. Redington Ltd willestimate the liabilities if required but will not be heldresponsible for any loss or damage howsoeversustained as a result of inaccuracies in thatestimation. Additionally, the client recognizes thatRedington Ltd does not owe any party a duty of carein this respect.Redington Ltd are investment consultants regulatedby the Financial Services Authority. We do notadvise on all implications of the transactionsdescribed herein. This information is for discussionpurposes and prior to undertaking any trade, youshould also discuss with your professional tax,accounting and / or other relevant advisers how suchparticular trade(s) affect you. All analysis (whether inrespect of tax, accounting, law or of any othernature), should be treated as illustrative only and notrelied upon as accurate.Redington Limited (reg no 6660006) is a companyauthorised and regulated by the FinancialServices Authority and registered in England andWales. Registered office: 13-15 Mallow StreetLondon EC1Y 8RD10