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LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
LDI & Risk Management Workshop
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LDI & Risk Management Workshop

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  • 1. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Redington and BNY Mellon iRIS Teach-In 5th June 2013
  • 2. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 2 Examples of Current Clients Acknowledged Excellence Recent Award Wins Risk Management Firm of the Year Best Consulting Firm of the Year Pension Consultant of the Year Redington Overview Investment Consultant of the Year
  • 3. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 3 The Evolution of Our Business 21 55 98 100 185 225 250 270 0 50 100 150 200 250 300 2006 2007 2008 2009 2010 2011 2012 Current GBPmillions Client size Trustee – Full Advisor Trustee – Project Sponsor Non- Pension Total > £10Bn 1 2 3 1 7 £5Bn - £10Bn 0 4 1 1 6 £1Bn - £5Bn 7 2 5 6 20 £500m - £1Bn 0 6 1 0 7 < £500m 4 3 1 3 11 Total 12 17 11 11 51 Assets Under Consulting (GBP millions) Number of Clients Client Breakdown by Type and Size 1 7 11 17 31 37 44 51 0 10 20 30 40 50 60 2006 2007 2008 2009 2010 2011 2012 Current
  • 4. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Who Are We? 4
  • 5. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Our Mission: To Design, Develop, and Deliver the best investment strategies for our clients 5
  • 6. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 6 We live in uncertain times...
  • 7. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 7 People Are Living Longer
  • 8. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 8 Uncertain Economic Outlook
  • 9. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 9 Immense Pressure for Schemes Today the aggregate funding level of pension funds in the FTSE 100 is only 63%
  • 10. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 10 The Future is Uncertain
  • 11. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 11 CLEAR GOALS & OBJECTIVES ACCESS TO DERIVATIVE HUB LIQUID MARKET STRATEGIES LIQUID & SEMI-LIQUID CREDIT STRATEGIES ILLIQUID CREDIT STRATEGIES ILLIQUID ALPHA & BETA STRATEGIES ONGOING MONITORING 7 Steps to Full Funding Mission Statement To help our clients achieve full-funding with the minimum level of risk
  • 12. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 12 Dynamic Continuous Monitoring Deliver Develop Design 7 Steps to Full Funding "Redington is the only investment consulting firm with a clear and coherent process” Trustee at Law Debenture, speaking of the 7 Steps to Full Funding
  • 13. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 13 Why do Your Clients Need iRIS?
  • 14. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 14 Why do Your Clients Need iRIS?
  • 15. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 15 Challenge 1 – Managing the End Game Objective Measurement (Assumed) Performance Indicators Performance (31 March 2013) RAG Funding Objectives Primary Funding Objective: To remain fully funded on an Ongoing (Gilts +60bps) basis. Expected Returns > Required Returns Required Return: Expected Return: Difference: Gilts +25bps Gilts +40bps +15bps Secondary Funding Objective: To build up a sufficient buffer to withstand an adverse demographic shock and still return to full funding by 2023. Expected Returns > Required Returns to return to full funding by 2023 (following an adverse demographic shock) Required Return: Expected Return: Difference: Gilts +129bps Gilts +40bps -89bps Investment Strategy Actual Returns should exceed Expected Returns (implying outperformance). Actual Returns > Expected Returns Actual Return: Expected Return: Difference: Gilts + xxxbps Gilts + xxxbps xxxbps Risk Budget The investment strategy should not risk the deficit worsening by [10%] of liabilities over a 1- year period (including longevity risk). VaR95 < 10% of liabilities VaR95: 7.8% Hedging Strategy Nominal/Inflation hedge ratio should be maintained within +/- [5]% of the funding ratio. Funding Ratio (Ongoing Basis) 106% Nominal Hedge Ratio (Ongoing Basis) 90% Inflation Hedge Ratio (Ongoing Basis) 90% Liquidity Maintain sufficient eligible collateral to meet potential margin calls on derivative positions and cover one-year’s worth of benefit payments Total available liquid assets £[xxx]m One-Year Collateral Requirement + One-Year Cash Flow £[xxx]m Status Metric is at or above target Metric is within [10%] of target Metric is more than [10%] away Strategic Challenge
  • 16. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 16 Challenge 2 - Governance and Decision Making Online – login anytime, anywhere Where are you? - Funding Level Tracker Required Return at Risk and Funding Ratio at Risk Where are you going? – Required Rate of ReturnClarity, Accountability and Transparency Operational Challenges
  • 17. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 17 Challenge 3 – Deficit Funding and Management General Healthcare Group - Set up clear goals and objectives through Pension Risk Management Framework 17 Objective Measurement 17/09/2012 RAG Funding To reach full funding by 2022 on Gilts + 25bps basis Market value of assets £103m Estimated value of liabilities £124m Funding level 83.4% Next de-risking trigger 87.0% Required return to achieve target full funding Gilts + 218bps Expected return of assets under current strategy Gilts + 207bps Margin (Expected return less required return) 11 bps Risk Value at Risk should be less than [24%] Total VaR95 23.6% Equity VaR 7.3% Credit VaR 3.4% FX VaR 1.2% Interest Rate VaR 11.6% Inflation VaR 10.1% Hedging Interest rate and inflation rate hedge should be maintained within +/-10% of Funding Ratio Nominal hedge ratio (range 73.4% - 93.4%) 69% Inflation hedge ratio (range 73.4% - 93.4%) 71% Collateral Collateral required for equity futures and Synthetic Gilts As calculated by Schroders [£22m] Total cash available As calculated by Schroders [£30m] Status Metric is at or above target Metric is within [10%] of target Metric is more than [10%] away Financial and Economic
  • 18. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Challenge 3 – Deficit Funding and Management General Healthcare Group- Daily monitoring of funding level to implement de-risking as funding level improves 60% 65% 70% 75% 80% 85% 90% 95% Fundinglevel Original Strategy Actual Strategy De-Risking Triggers De-Risking Triggers Re-Risking Trigger De-Risking Trigger 89.2% 81.0% 18 Financial and Economic
  • 19. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 19 Challenge 4 - Investment Returns SAA allows agile decisions around the asset portfolioClear required returns to meet future liabilities Clear accountability of SAA and managers DevelopedEquities (Inc. EquityFuture), 8.0% DevelopingEquities, 2.0% EuroABS, 4.8% Property, 6.8% HedgeFund, 3.5% ILS, 2.2% ENWStructuredNote, 0.6% Cash, 3.8% Swaps(ex. LinkerAsset Swaps), 10.9% UK Gilt, 2.8% Index-LinkedBonds +Asset Swaps+Repo, 9.8% Corporate, 44.8% Positive Negative Total Return Over Flight Plan Required Return Return Over Expected Return Total Return 667 492 466 Gain/ Losson Dollar Overhedge Index Linked Gilts 8 HedgeFund 10 ILS 20 Property -16 Equity 124 Credit 521 521 124 20 667 492 466 -100 0 100 200 300 400 500 600 700 800 ExcessReturnoverLIBBORinbasispoints “I think it is a very good document. In addition, I think more pension schemes should be looking at the performance of their assets on this basis i.e. with the primary focus being on risk and on performance against liabilities” Trafalgar House Pension Scheme Strategic Challenge
  • 20. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 20 Challenge 5 – Economy (Financial Markets) Performance in context of key financial market factors “What if” analysis in context of adverse market scenarios Sensitivity analysis against interest rates and inflationRisk in context of key financial market factors Strategic Challenge
  • 21. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 21 iRIS. Same But Different....
  • 22. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 22 iRIS. Same But Different iRIS gives clarity to pension schemes to help them get back on track and reach their goals Monitor risk. Measure progress. Stay on track.
  • 23. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 23 Partnership Structure Custody Client Data Provider Ongoing monitoring - iRIS Pension Fund Redington
  • 24. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Key Features of iRIS 24
  • 25. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 25 Step 1: Setting Clear Goals and Objectives Objective Measurement (Assumed) Performance Indicators Performance (31 March 2013) RAG Funding Objectives Primary Funding Objective: To remain fully funded on an Ongoing (Gilts +60bps) basis. Expected Returns > Required Returns Required Return: Expected Return: Difference: Gilts +25bps Gilts +40bps +15bps Secondary Funding Objective: To build up a sufficient buffer to withstand an adverse demographic shock and still return to full funding by 2023. Expected Returns > Required Returns to return to full funding by 2023 (following an adverse demographic shock) Required Return: Expected Return: Difference: Gilts +129bps Gilts +40bps -89bps Investment Strategy Actual Returns should exceed Expected Returns (implying outperformance). Actual Returns > Expected Returns Actual Return: Expected Return: Difference: Gilts + xxxbps Gilts + xxxbps xxxbps Risk Budget The investment strategy should not risk the deficit worsening by [10%] of liabilities over a 1- year period (including longevity risk). VaR95 < 10% of liabilities VaR95: 7.8% Hedging Strategy Nominal/Inflation hedge ratio should be maintained within +/- [5]% of the funding ratio. Funding Ratio (Ongoing Basis) 106% Nominal Hedge Ratio (Ongoing Basis) 90% Inflation Hedge Ratio (Ongoing Basis) 90% Liquidity Maintain sufficient eligible collateral to meet potential margin calls on derivative positions and cover one-year’s worth of benefit payments Total available liquid assets £[xxx]m One-Year Collateral Requirement + One-Year Cash Flow £[xxx]m Status Metric is at or above target Metric is within [10%] of target Metric is more than [10%] away
  • 26. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 26 Funding Level 26 Funding ratio is as an indicator of the scheme’s health
  • 27. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 2013 2014 2015 2016 2017 2018 2019 2020 GBPMillions Liabilities Path Actual Liabilities Assets Path Actual Assets The Flight Plan - Illustrative Liability Basis Contributions & Asset Returns Time Horizon The Flight Plan acts as a SatNav, informing Trustees where they are, and whether they are on track towards their goals. 27
  • 28. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 SatNav for Pension Schemes Schemes with a Flight Plan know exactly where they are and can take appropriate investment opportunities when they arise 28
  • 29. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Three Lenses 29
  • 30. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Sensitivity Microscope Interest rate PV01 allows Trustees to understand how sensitive their assets and liabilities are to interest rates and inflation 30
  • 31. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Risk Telescope Value-at-Risk allows Trustees to measure risk and understand the impact of their investment strategy on their current position 2.5% 0.5% 0.5% 2.7% 0.4% 3.9% 4.0% 6.2% 7.9% 0% 2% 4% 6% 8% 10% 12% 14% 16% PercentageofTotalLiabilities Risk Type Risk Attribution by Risk Type (% of Liabilities) Asset Risk Liability Risk 31
  • 32. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Scenario Kaleidoscope 32 The stress tests allows Trustees to understand how sensitive the scheme is to adverse market scenarios
  • 33. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Collateral Requirements 33 255 178 62 14 97 341 157 410 0 200 400 600 800 1,000 1,200 Collateral Requirement Available Collateral GBPMillions 1 Year VaR of Swaps 1 Year VaR of Gilts 1 Year VaR of Equity Future+TRS Initial Margin of Equity Future Conventional Gilts Index Linked Gilts+Asset Swaps+Repo Cash Swap MtM Collateral analysis monitors whether the Scheme has sufficient collateral to meet derivative calls over the next year on a minimum worst-case basis
  • 34. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 13-15 Mallow Street London EC1Y 8RD Telephone : +44 (0) 20 7250 3331 www.redington.co.uk Contacts Robert Gardner Founder and Co-CEO Direct Line: 0207 250 3416 robert.gardner@redington.co.uk LinkedIn: http://linkd.in/134mv6H Twitter: https://twitter.com/robertjgardner 34 Steven Yang Yu Director and Co-Head of ALM Direct Line: 0203 326 7118 Steven.yangyu@redington.co.uk LinkedIn: http://linkd.in/11fvC1S Teresa Ngone Investment Consultant Direct Line: 0203 326 7132 teresa.ngone@redington.co.uk Linkedin: http://linkd.in/ZqUaIs Twitter: https://twitter.com/
  • 35. Private & Confidential BNY Mellon iRIS Teach-In 05 June 2013 Get To Know Us Better With Our Publications 35

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