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Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
Putting It All Together
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Putting It All Together

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  • 1. Redington13-15 Mallow StreetLondon EC1Y 8RDT. 020 7250 3416www.redington.co.ukPutting It All TogetherRobert Gardner30 August 20121
  • 2. The Pensions Risk Management Framework (PRMF)Objective Performance Indicators Actual PerformanceFunding StrategyTo reach full funding by2020Funding 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-20 minimumworst-case loss shouldnot exceed 15% ofliabilities1-year 95% Value-at-Risk >[15]%Aspirational targetTo be fully inflation andinterest rate hedgedNominal hedge ratio <[80]%Inflation hedge ratio <[80]%Scheme constraintLiquidity & collateralrequirementsLiquidity: cash held sufficient to pay twomonths of benefits£50mCollateral: available eligible collateralsufficient to meet potential collateralcalls on derivative positions>£500mSource: Redington.
  • 3. The Flight PlanSource: Redington.2012 2013 2014 2015 2016 2017 2018 2019 2020GBPMillions―Actual Liabilities∙∙∙Assets Path--- Liabilities Path―Actual Assets
  • 4. Credit Spread and Gilt Yield Evolution-1000100200300400500600bps20-Year Gilt Real Yield Sterling IG 15+ Corporate Spread IG Spread + Real YieldSource: Redington; Bloomberg, Bank of America Merrill Lynch.
  • 5. The Fixed Income UniverseNumbers refer to the approximate size ofeach investment universe ($trn).Source: Redington; Barclays (IG, ABS); iBoxx (Subfins); Babson Capital (High Yield, Lev Loans, CLOs); Bluebay Asset Management, Stone Harbor Investment Partners (EM).
  • 6. • Credit Spread VaR is calculated using monthly data under a lognormal assumption with 95%confidence.• Leveraged Loans Index is the Credit Suisse Leveraged Loans Index.• High Yield Index is the Merrill Lynch Global High Yield Index.• Investment Grade index is the Merrill Lynch Sterling Corp & Collateralised All Stocks ex SubIndex.• Emerging Market Debt index is the Merrill Lynch Emerging Markets Plus Index.• Sub-Financials index is a custom Merrill Lynch Index including Tier 1, Upper Tier 2 and LowerTier 2 instruments.• ABS index is Merrill Lynch Sterling ABS/MBS Index.The Case for Unconstrained Fixed Income: 31/12/2006
  • 7. The Case for Unconstrained Fixed Income: 2006-2012
  • 8. The Case for Unconstrained Fixed Income: 31/07/2012
  • 9. ImplementationSource: Redington; Barclays (IG, ABS); iBoxx (Subfins); Babson Capital (High Yield, Lev Loans, CLOs); Bluebay Asset Management, Stone Harbor Investment Partners (EM).
  • 10. Interest Rate CycleCredit Spread Cycle• Diversify from other risk exposures• Absolute return strategies may be uncorrelated with equity or bond portfolios• Low risk strategy but higher returns than a cash fund• Advantage of the wide universe of funds is that a fund can be chosen to meet the specific riskappetite of any client• Access manager alpha• But in a more accountable, affordable and transparent structure than investing in a hedge fundAbsolute Return Fixed IncomeSource: Redington
  • 11. Conclusion: Expanding the ToolkitSource: Redington; Barclays (IG, ABS); iBoxx (Subfins); Babson Capital (High Yield, Lev Loans, CLOs); Bluebay Asset Management, Stone Harbor Investment Partners (EM).
  • 12. ContactsDisclaimerDisclaimer For professional investors only. Not suitable for private customers.The information herein was obtained from various sources. We do not guarantee every aspect of its accuracy. The information is for yourprivate information and is for discussion purposes only. A variety of market factors and assumptions may affect this analysis, and thisanalysis does not reflect all possible loss scenarios. There is no certainty that the parameters and assumptions used in this analysis can beduplicated with actual trades. Any historical exchange rates, interest rates or other reference rates or prices which appear above are notnecessarily indicative of future exchange rates, interest rates, or other reference rates or prices. Neither the information,recommendations or opinions expressed herein constitutes an offer to buy or sell any securities, futures, options, or investment productson your behalf. Unless otherwise stated, any pricing information in this message is indicative only, is subject to change and is not an offerto transact. Where relevant, the price quoted is exclusive of tax and delivery costs. Any reference to the terms of executed transactionsshould be treated as preliminary and subject to further due diligence .Please note, the accurate calculation of the liability profile used as the basis for implementing any capital markets transactions is the soleresponsibility of the Trustees actuarial advisors. Redington Ltd will estimate the liabilities if required but will not be held responsible forany loss or damage howsoever sustained as a result of inaccuracies in that estimation. Additionally, the client recognizes that RedingtonLtd does not owe any party a duty of care in this respect.Redington Ltd are investment consultants regulated by the Financial Services Authority. We do not advise on all implications of thetransactions described herein. This information is for discussion purposes and prior to undertaking any trade, you should also discusswith your professional tax, accounting and / or other relevant advisers how such particular trade(s) affect you. All analysis (whether inrespect of tax, accounting, law or of any other nature), should be treated as illustrative only and not relied upon as accurate.©Redington Limited 2012. All rights reserved. No reproduction, copy, transmission or translation in whole or in part of this presentationmay be made without permission. Application for permission should be made to Redington Limited at the address below. RedingtonLimited (6660006)is registered in England and Wales. Registered office: 13-15 Mallow Street London EC1Y 8RDTHE DESTINATION FOR ASSET & LIABILITY MANAGEMENTDirect Line: +44 (0) 20 7250 3416Telephone: +44 (0) 20 7250 3331Redington13-15 Mallow StreetLondon EC1Y 8RDRobert GardnerFounder & Co-CEOrobert.gardner@redington.co.ukwww.redington.co.ukRisk Management Firm of the Year(2011, 2012)Pension Consultant of theYear 2012

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