0
Redington
Investment Banking
Pensions Forum
8 July 2014
Redington:
Business Update
Our first client 7 years ago...
... our current list of clients.
21
55
98 100
185
225
250
300
335
0
50
100
150
200
250
300
350
400
2006 2007 2008 2009 2010 2011 2012 2013 Current
GBPbilli...
Client size (assets)
Trustee: Full
Advisor
Trustee:
Project
Sponsor
Non-
Pension
Total
> £10Bn 1 4 3 3 11
£5Bn - £10Bn 0 6...
12 Full Time Equivalents doing Manager Research
LDI HUB
LIQUID MARKET STRATEGIES
LIQUID & SEMI-LIQUID CREDIT STRATEGIES
ILLIQUID CREDIT STRATEGIES
ILLIQUID MARKET STRATEG...
Investment Strategy
Multiple Investment
Strategy Processes
Inconsistent
Poor Quality Possible
Time Consuming
One
Investment
Strategy
Process
C...
Manager Research:
Business Update
Investment
Strategy &
Research
Team
Risk Analysis and Modelling Asset Class and Manager Research
• Analysis and modelling ...
Comparison vs. ‘Traditional’ Investment Consultancy Model
Redington ‘Traditional’ Investment
Consultancy Model
Business Mo...
Preferred List Process
Advantages: Why?
High
Conviction
3 to 5 managers in each sub asset class, typically each will bring...
LDI HUB
LIQUID MARKET STRATEGIES
LIQUID & SEMI-LIQUID CREDIT STRATEGIES
ILLIQUID CREDIT STRATEGIES
ILLIQUID MARKET STRATEG...
LDI Hub Liquid Markets Liquid Credit Illiquid Credit Illiquid Markets
Collateral Mgt. Equities (EM, DM) Sterling Credit (I...
2
6
5
11
£4.0bn Allocated in 2013 (ex-LDI)* 25 Allocations Made in 2013:
Average Across Steps 3-6 = £176m
LDI Hub Liquid C...
Manager Research
Process
10 x 10 x 10
Our approach to screening, selecting and monitoring managers
Universe
Meetings
Preferred
Sterling
Credit
DGF Infra-
structure
Debt
Senior
CRE
Debt
Absolute
Rtn.
Bonds
Oct
2013
Dec
201...
How we reduce the universe down to a manageable list
Qualitative / Judgemental Factual / Quantitative
Business alignment C...
In our selection process, we are explicitly looking to
identify areas of competitive advantage.
We believe the very best m...
1. Information Advantage
2. Screening Advantage
3. Decision-Making Advantage
4. Conviction Advantage
5. Self-Awareness Adv...
Red Radar: Helping clients remain alert to what could go wrong
2. Client
Dependency
3. Leadership
Change
4. Culture
Change...
Our approach to research meetings – what we are looking for
Meetings by category within a short time period (allows compar...
A Stroll Through our
Investment Universe
Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance
Pooled vs. Seg DGFs Global Credit (I...
Our LDI Philosophy
1. LDI fits within the PRMF (Step 1) risk budget and objectives of each client.
2. LDI is part of the o...
LDI Implementation in Practice
Start
Structure
Risk
What resources does each client have?
• CIO Function
• Legal Resource
...
LDI Implementation:
Areas of Expertise
Banking
Group
Liquidity &
Leverage
Regulation
Assess the size / quality of the bank...
Contractual
Non-contractual
LiquidIlliquid
Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance
Pooled vs. Seg DGFs Global Credit (I...
Current Focus Areas
Lower client demand /
lesser focus
Higher client demand /
greater focus
Alternative Risk
Premia
Risk P...
Contractual
Non-contractual
LiquidIlliquid
Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance
Pooled vs. Seg DGFs Global Credit (I...
Contractual
Non-contractual
LiquidIlliquid
Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance
Pooled vs. Seg DGFs Global Credit (I...
525
245
250
600
500
245
CRE Debt Distressed Debt Illiquid Corporate Debt
Infrastructure Debt Private Placements Senior Dir...
Interacting With Us
Who ?
Dan Mikulskis
Co-head ALM & Investment Strategy, IC Member
Phil Rose
CIO Investment & Risk, IC Member
Pete Drewienkiewicz
...
What ?
What’s most interesting for us, to hear from you, and why …
4
We like to
hear about
Examples Why?
Market
colour
Data on Z-...
What’s most interesting for us, to hear from you, and why …
4
We like to hear
about
Examples Why?
What’s possible Implemen...
What’s most interesting for us, to hear from you, and why …
4
We like to hear
about
Examples Why?
Colour on
forthcoming de...
What’s in it for you
What’s in it for you ?
5
We are advocates
of
…and this means Benefit to you
LDI, and managing risk
through interest rate
h...
What’s in it for you ?
5
We … …and this means Benefit to you
Have influence with
asset managers
We can widen investment re...
Conclusion
Dos and Don’ts
Do Don't
Be selective
Be focused - Send us highlights and
"executive summaries" of research &
market colour...
Investment Banking Pensions Forum
Investment Banking Pensions Forum
Investment Banking Pensions Forum
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Investment Banking Pensions Forum

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Redington's business update, investment strategy, and manager research process.

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Transcript of "Investment Banking Pensions Forum"

  1. 1. Redington Investment Banking Pensions Forum 8 July 2014
  2. 2. Redington: Business Update
  3. 3. Our first client 7 years ago...
  4. 4. ... our current list of clients.
  5. 5. 21 55 98 100 185 225 250 300 335 0 50 100 150 200 250 300 350 400 2006 2007 2008 2009 2010 2011 2012 2013 Current GBPbillionsAssets Under Consulting: Evolution
  6. 6. Client size (assets) Trustee: Full Advisor Trustee: Project Sponsor Non- Pension Total > £10Bn 1 4 3 3 11 £5Bn - £10Bn 0 6 1 1 8 £1Bn - £5Bn 10 5 4 2 21 £500m - £1Bn 0 2 1 2 5 < £500m 4 1 1 3 9 Total 15 18 10 11 54
  7. 7. 12 Full Time Equivalents doing Manager Research
  8. 8. LDI HUB LIQUID MARKET STRATEGIES LIQUID & SEMI-LIQUID CREDIT STRATEGIES ILLIQUID CREDIT STRATEGIES ILLIQUID MARKET STRATEGIES REPORTING AND MONITORING CLEAR GOALS AND OBJECTIVES The 7 Steps to Full Funding
  9. 9. Investment Strategy
  10. 10. Multiple Investment Strategy Processes Inconsistent Poor Quality Possible Time Consuming One Investment Strategy Process Consistent Quality Control Efficient
  11. 11. Manager Research: Business Update
  12. 12. Investment Strategy & Research Team Risk Analysis and Modelling Asset Class and Manager Research • Analysis and modelling of both asset and liability side risks across different key metrics • Ongoing monitoring of Fund progress against objectives and risk constraints • Design of strategic asset allocations • Disciplined framework for hiring and terminating managers • Team specialisations cover entire universe of asset classes through categorisation by portfolio role • Significant expertise in designing and implementing investment strategies Focused ResearchRelevant AdvicePracticable Strategies Integrated Investment Strategy and Manager Research
  13. 13. Comparison vs. ‘Traditional’ Investment Consultancy Model Redington ‘Traditional’ Investment Consultancy Model Business Model Retained Fee Small Retainer and ‘Add-On’ Work Research Team Smaller, Focused Larger, Maintenance Research Manager Selection Included in Retainer Additional Fee Work Manager Views Preferred Lists Ratings Use of Managers High Conviction Many High-Rated Managers, Few Win Capital Philosophy Absolute Return, Risk-Allocation Focused Benchmark Focused Client Decision- Making Process Flexible, Quick to Act Constrained, Slow
  14. 14. Preferred List Process Advantages: Why? High Conviction 3 to 5 managers in each sub asset class, typically each will bring a different approach to the strategy Clarity for clients Clients on our retainer fee model will have access to all of our preferred list recommendations and be able to see our views Clarity for managers Feedback will be easier to deliver and clearer to understand Governance Having existing preferred lists allows clients to allocate to an asset class in a far more streamlined fashion Alignment With our retainer fee model – we are no longer incentivised to “churn” asset managers or drum up search business Scalable We build up IP over time and much client work can be delivered from existing resources Flexible We continue to offer a bespoke search process if desired and for our non-retained client base
  15. 15. LDI HUB LIQUID MARKET STRATEGIES LIQUID & SEMI-LIQUID CREDIT STRATEGIES ILLIQUID CREDIT STRATEGIES ILLIQUID MARKET STRATEGIES REPORTING AND MONITORING CLEAR GOALS AND OBJECTIVES The 7 Steps to Full Funding
  16. 16. LDI Hub Liquid Markets Liquid Credit Illiquid Credit Illiquid Markets Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance Pooled vs. Seg DGFs Global Credit (IG) Infrastructure Debt Private Equity Leverage & Liquidity Style Premia HY/Loans Senior Direct Lending Infrastructure Overlay Strategies Risk Parity ABS Mezzanine Finance Real Estate CTA Emerging Market Debt Distressed Debt Global Macro Absolute Return Bonds Senior CRE Debt Equity Long-Short Multi-Class Credit Credit Relative Value Steps 2-6:
  17. 17. 2 6 5 11 £4.0bn Allocated in 2013 (ex-LDI)* 25 Allocations Made in 2013: Average Across Steps 3-6 = £176m LDI Hub Liquid Credit Liquid Markets Illiquid Credit *£7.3bn inc. LDI 0.8 0.92.4
  18. 18. Manager Research Process
  19. 19. 10 x 10 x 10 Our approach to screening, selecting and monitoring managers
  20. 20. Universe Meetings Preferred Sterling Credit DGF Infra- structure Debt Senior CRE Debt Absolute Rtn. Bonds Oct 2013 Dec 2013 Dec 2013 Jan 2014 Jan 2014 43 33 25 30 86 9 15 8 7 20 3 3 2 3 4 Screening the Universe Ones to watch
  21. 21. How we reduce the universe down to a manageable list Qualitative / Judgemental Factual / Quantitative Business alignment Capacity available Commitment to product Fee level and structure AUM Portfolio analysis Team Performance & risk analysis Transparency Product appropriateness
  22. 22. In our selection process, we are explicitly looking to identify areas of competitive advantage. We believe the very best managers differentiate themselves in one of the following ways. What are we looking for in preferred list managers?
  23. 23. 1. Information Advantage 2. Screening Advantage 3. Decision-Making Advantage 4. Conviction Advantage 5. Self-Awareness Advantage 6. Teamwork Advantage 7. Risk Management Advantage 8. Execution Advantage 9. Strategic Advantage 10. Innovation Advantage Competitive assessment - preferred list managers
  24. 24. Red Radar: Helping clients remain alert to what could go wrong 2. Client Dependency 3. Leadership Change 4. Culture Change 5. Key Person 6. Complexity 7. Process Drift 8. Capacity Management 9. Operational Infrastructure 10. Risk Culture 1. Business Management
  25. 25. Our approach to research meetings – what we are looking for Meetings by category within a short time period (allows comparison) Information and presentation in advance (so we can come prepared) Avoid turning pages (not assessing presentation skills) Focus on portfolio positioning, changes and decisions Meet different people at all levels Informal interaction, floor walk, attend morning meetings Detailed information and transparency (portfolio analysis) Keep us updated (monitor decisions over time)         In return we waste less of your valuable time in meetings, we focus on what matters, make decisions quicker and give you more open feedback.
  26. 26. A Stroll Through our Investment Universe
  27. 27. Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance Pooled vs. Seg DGFs Global Credit (IG) Infrastructure Debt Private Equity Leverage & Liquidity Style Premia HY/Loans Senior Direct Lending Infrastructure Overlay Strategies Risk Parity ABS Mezzanine Finance Real Estate CTA Emerging Market Debt Distressed Debt Global Macro Absolute Return Bonds Senior CRE Debt Equity Long-Short Multi-Class Credit Credit Relative Value
  28. 28. Our LDI Philosophy 1. LDI fits within the PRMF (Step 1) risk budget and objectives of each client. 2. LDI is part of the overall ALM framework. Rates and Inflation are merely the largest components of risk. 3. Redington make LDI decisions based on Risk impact and Required Return expectations. 4. LDI strategy is outcome-focused for each client. 5. Redington do not call markets. We prefer Funding Ratio Triggers and dislike market- based hedging strategies.
  29. 29. LDI Implementation in Practice Start Structure Risk What resources does each client have? • CIO Function • Legal Resource What structure is most appropriate given size, resource and derivative usage? • Pooled vs. seg mandate • QIF • Own docs vs. Agency How best to manage and monitor risk? • Risk policies • IMA • Reporting pack
  30. 30. LDI Implementation: Areas of Expertise Banking Group Liquidity & Leverage Regulation Assess the size / quality of the banking group and related Swap and Repo documentation • Best Terms? • Fairness and Consistency Ensure client has enough collateral given OTC usage and pension outflows • Has the client got enough leverage given required Portfolio returns? What are the impacts of EMIR on pension schemes? • What are the implications of Banking regulation on dealing costs and liquidity? Review As the hedge increases over time, how does the risk profile of the portfolio change? • When is it appropriate to change an LDI mandate from Passive to Active?
  31. 31. Contractual Non-contractual LiquidIlliquid
  32. 32. Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance Pooled vs. Seg DGFs Global Credit (IG) Infrastructure Debt Private Equity Leverage & Liquidity Style Premia HY/Loans Senior Direct Lending Infrastructure Overlay Strategies Risk Parity ABS Mezzanine Finance Real Estate CTA Emerging Market Debt Distressed Debt Global Macro Absolute Return Bonds Senior CRE Debt Equity Long-Short Multi-Class Credit Credit Relative Value Done / In Progress
  33. 33. Current Focus Areas Lower client demand / lesser focus Higher client demand / greater focus Alternative Risk Premia Risk Parity CTAs Global Macro Fundamental Long / Short Equity Fundamental Active Equity
  34. 34. Contractual Non-contractual LiquidIlliquid
  35. 35. Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance Pooled vs. Seg DGFs Global Credit (IG) Infrastructure Debt Private Equity Leverage & Liquidity Style Premia HY/Loans Senior Direct Lending Infrastructure Overlay Strategies Risk Parity ABS Mezzanine Finance Real Estate CTA Emerging Market Debt Distressed Debt Global Macro Absolute Return Bonds Senior CRE Debt Equity Long-Short Multi-Class Credit Credit Relative Value Done / In Progress
  36. 36. Contractual Non-contractual LiquidIlliquid
  37. 37. Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance Pooled vs. Seg DGFs Global Credit (IG) Infrastructure Debt Private Equity Leverage & Liquidity Style Premia HY/Loans Senior Direct Lending Infrastructure Overlay Strategies Risk Parity ABS Mezzanine Finance Real Estate CTA Emerging Market Debt Distressed Debt Global Macro Absolute Return Bonds Senior CRE Debt Equity Long-Short Multi-Class Credit Credit Relative Value Done / In Progress
  38. 38. 525 245 250 600 500 245 CRE Debt Distressed Debt Illiquid Corporate Debt Infrastructure Debt Private Placements Senior Direct Lending Total: £2.4bn Allocations to Illiquid Credit over 2013 (£m)
  39. 39. Interacting With Us
  40. 40. Who ?
  41. 41. Dan Mikulskis Co-head ALM & Investment Strategy, IC Member Phil Rose CIO Investment & Risk, IC Member Pete Drewienkiewicz Head of MRT, IC Member Kenny Nicoll MRT, responsible for LDI implementation Aniket Das MRT, responsible for liquid & multi-asset strategies David Bennett Head of Investment Consulting, IC Member
  42. 42. What ?
  43. 43. What’s most interesting for us, to hear from you, and why … 4 We like to hear about Examples Why? Market colour Data on Z-spread, Inflation, Iota, LPI, Swaptions. Highlight significant moves in longer term context. Realised vol vs long term Many of us have been practitioners, but we no-longer sit in front of Bloomberg or in the hub of a trading floor. Access & knowledge of this information is a key differentiator of us vs competitors Comment around market events Is it market moving ? Could it affect the attractiveness of certain strategies ? Would our clients be hearing about it ? Themes REPO market usage, central clearing, gilt issuance We want to stay ahead of any themes that could influence the use of derivatives in our clients’ investment strategies so we don’t get caught out Emerging risks LIBOR/SONIA, CSA dirty to clean We’ve been ahead of our competitors in addressing these issues and adding constraints in LDI mandates. We’d like to stay that way Asset Managers Who do you see often, in which areas, execution strengths We consider our ability to get colour on asset managers from the sell side an important differentiator from our competitors when it comes to manager research 1. LDI
  44. 44. What’s most interesting for us, to hear from you, and why … 4 We like to hear about Examples Why? What’s possible Implementing investment strategies synthetically allows clients to make better use of their physical asset collateral and adds another “lever” to their strategic asset allocation. It’s a significant differentiator of our process which we believe adds value, so its important for us to stay on top of developments Liquidity Growth in liquidity of EM equity future Costs Roll costs, funding costs We need to be on top of any changes in the costs associated with a derivative strategy so we can give comfort to our clients Asset manager expertise Who do you see often, in which areas, execution strengths We consider our ability to get colour on asset managers from the sell side an important differentiator from our competitors when it comes to manager research 2. Synthetic Asset Exposures
  45. 45. What’s most interesting for us, to hear from you, and why … 4 We like to hear about Examples Why? Colour on forthcoming deals Deals, pipeline, structures, expected spreads We’ve been advocates of allocation to illiquid assets where these can help our clients meet their required returns. Liquidity freed up from using synthetic exposures can be employed to earn an illiquidity premium Clients by now expect us to have good visibility of deal pipeline and help them (via fund managers) to get access to the deals Being involved early we can shape key terms etc to make most attractive to pension funds and hence increase chance of deal being done 3. Illiquid asset origination
  46. 46. What’s in it for you
  47. 47. What’s in it for you ? 5 We are advocates of …and this means Benefit to you LDI, and managing risk through interest rate hedging (among other tools) Appoint LDI manager if none exists Increase LDI manager’s flexibility over instrument usage Widen counterparty bank panel Increase interest rate & inflation hedge ratio Consider synthetic equity exposures Indirect through LDI franchise, sales to asset managers Derivative Based Strategies We’ve allocated significant capital to the following strategies, with more to come • Multi asset relative value • Absolute return bonds • Style risk premia Indirect through derivative franchises, sales to asset managers Risk Control & Explicit Downside protection Design and implementation of strategies involving synthetic exposures, risk control & downside protection • Vol control equity + put Indirect through risk control franchise & structuring
  48. 48. What’s in it for you ? 5 We … …and this means Benefit to you Have influence with asset managers We can widen investment restrictions, add to fund manager discretion and suggest banks to add to counterparty panels. Potentially increased opportunity for asset managers to implement rv ideas (where there is a good case for it) Are always keen to talk about the strategic direction of pension funds Strategic insight into what we think pensions schemes will be interested in doing Ability to position wrt products or asset manager coverage
  49. 49. Conclusion
  50. 50. Dos and Don’ts Do Don't Be selective Be focused - Send us highlights and "executive summaries" of research & market colour Read our website, blog & thought pieces to understand our investment philosophy, and what matters to us Understand that individual trade ideas probably aren’t for us Try and keep in mind how things fit into our strategic view of the world Highlight opportunities for us to meet directly with relevant traders who have interesting insight Keep us in the loop with product and strategy ideas shared with our clients, or prospects Product push Take a "Scatter gun" approach Be unrealistic View us as an outlet for a particular axe or position Waste meeting time talking about why a particular asset or strategy makes sense – we know! Push for meetings more frequently than is really necessary Assume we are looking for opportunities to move toward asset management
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