February 2013 Press Kit - For Journalist Use Only 3What We’re DoingExtending the Credit UniverseWe have helped several clients diversify out of conventional corporate credit to other sources of creditexposure, increasing expected returns without compromising risk. Examples include the use of alpha-oriented and “Go Anywhere” flexible mandates as well as illiquid credit assets like leveraged loans. Seealso “Opportunities in Illiquid Credit” in the next section.For further information: Pete Drewienkiewicz, David Bennett, Mark Herne, Neha BhargavaAccessing Infrastructure DebtInfrastructure is now well on the pension industry’s radar. Attractive opportunities in infrastructure debtcurrently exist because banks are under significant pressure to reduce their holdings in this asset class.We are working with clients and the wider industry to develop opportunities ideally suited for schemes.For further information: Conrad HolmboeUsing Swaptions in an LDI FrameworkSwaptions allow schemes to establish protection against falling interest rates while maintaining thepotential to benefit from a rising rate environment. A number of clients have taken advantage of andimplemented swaption strategies, allowing them to hedge interest rate risk at more palatable levels.For further information: David Bennett, Dan Mikulskis, Pete DrewienkiewiczReviewing LDI MandatesLDI is one of the most important and longstanding topics on pension schemes’ agendas, yet many ofthem are using out-dated LDI mandates. This can lead to excessive risk in scheme portfolios, inability totake advantage of market opportunities, inefficient liability control and a lack of transparency.For further information: Pete Drewienkiewicz, Kenny Nicoll, Tom McCartanPreparing for EMIROur recent survey of pension stakeholders revealed the majority felt unprepared for the implications ofEMIR. Asset allocation, risk management and LDI strategies (including collateral management) will beaffected but client work shows the costs, benefits and decisions will differ across individual schemes.For further information: Tom McCartan, Kenny Nicoll, Pete Drewienkiewicz, Freddie EwerIncorporating Sponsor Metrics into Scheme Risk FrameworksThe risk imposed by DB schemes on their corporate sponsor is under ever greater scrutiny by ratingagencies, lending banks, investors and the PPF. We are working with trustees to measure and react tothis risk and with sponsor clients to help them effectively manage it via risk management frameworks.For further information: Karen Heaven
4 Press Kit - For Journalist Use Only February 2013Launching RedSTARTA financial literacy and entrepreneurship education programme for young people. RedSTART has heldtwo education sessions to date, with ten more planned for 2013. The feedback from pupils and theirteachers has been very encouraging. We are currently looking for partners to expand the programmeacross the UK. Topics covered include investments, credit, entrepreneurship and, of course, pensions.For further information: Freddie Ewer, Jonathan Letham or visit the website - redstart.redington.co.ukWhat We’re ThinkingRisk-Controlled Investment StrategiesVolatility Control, Risk Parity and Equity Replacement strategies demonstrate how a risk-focused basisfor investment can lead to more consistent and superior risk-adjusted returns for pension schemes. Wehave been researching how risk-controlled strategies can be used by DB and DC schemes to producebetter risk-adjusted returns, as well as advising a number of clients on specific allocations to thesestrategies.For further information: Dan Mikulskis, Aniket Das, Patrick O’SullivanAlternative Benchmarks and IndicesMore and more we see an acceptance that a traditional active or passive market-capitalizationweighted approach is not the most effective way for pension funds to access the various risk premiathat exist in global markets.For further information: Dan Mikulskis, Steven Yang YuSolution to Guarantee DC Pension PotsWe believe many of the risk management approaches we advocate in DB pension scheme investingcan be applied to DC. Compared to traditional DC approaches, these approaches can give the membera similar final outcome, but with much smaller fluctuations in the value of the DC pension pot along theway.For further information: Dan Mikulskis, Patrick O’SullivanOpportunities in Illiquid CreditIn a low yield environment with deleveraging by banks, many schemes are ideally placed to benefit fromexcess returns from illiquid credit, such as leveraged loans, commercial real estate debt, PF2 loans anddirect lending to smaller companies.For further information: Pete Drewienkiewicz, David Bennett, Mark Herne, Conrad Holmboe
February 2013 Press Kit - For Journalist Use Only 5Inflation Risk – Improving Calculations and ReactionsUK pension scheme liabilities are generally linked to inflation subject to caps and floors. This presentsa challenge when trying to hedge this liability with instruments linked purely to inflation. Historically arange of different models have been used to tackle this problem, and the choice of model can have alarge impact on the inflation sensitivity of a pension schemes liabilities. This is not something that isalways well understood by pension scheme trustees and yet it wields significant influence over theinvestment strategy.For further information: Dan Mikulskis, Steven Yang YuLow Bond Yields ≠Low Bond ReturnsAn upcoming RedViews shows that low-yielding government bonds can still produce attractive returns ina low-to-lower yield environment. “Carry” is an important driver of both bond returns and the value ofliabilities over time. Regulations will also play a significant, influencing the demand for safe assets.For further information: John Towner, Mark Herne, David BennettExpanding Inflation-Linked Asset OpportunitiesInflation remains a key risk to DB schemes, yet the size of inflation-linked bond markets hampers theirability to hedge. We are working with the wider industry to find a solution to this issue, for example, byimproving the ability of utility companies to issue inflation-linked debt.For further information: John TownerSmoothing is No Pensions’ PanaceaIn response to the DWP consultation on discount rate smoothing, Redington put forward that smoothingdiscount rates for assets and liabilities may well end up creating more problems than it seeks to solve.For further information: Karen Heaven, Mark Herne, Dan MikulskisStay In TouchRedingtonpinsRedington@RedSTARTeducate@RedBlogTweets@redingtontweetsredstart.redington.co.ukblog.redington.co.ukredington.co.uk
6 Press Kit - For Journalist Use Only February 2013Spokespeople Contact DetailsRobert GardnerCo-Founder & Co-CEOrobert.email@example.com 020 7250 3416Dawid Konotey-AhuluCo-Founder & Co-CEOdawid@redington.co.uk 020 7250 3415David BennettManaging Director, Investment Consultingdavid.firstname.lastname@example.org 020 3326 7147Mark HerneManaging Director, Investment Consultingmark.email@example.com 020 3326 7107John TownerDirector, Investment Consultingjohn.firstname.lastname@example.org 020 3326 7143Pete DrewienkiewiczDirector, Head of Manager Researchpete.email@example.com 020 3326 7138Dan MikulskisDirector, ALM & Investment Strategydan.firstname.lastname@example.org 020 3326 7129Steven Yang YuDirector, ALM & Investment Strategysteven.email@example.com 020 3326 7118
8 Press Kit - For Journalist Use Only February 2013Keep Up To DateIf you wish to subscribe, please visit www.redington.co.uk/publications.aspx and fill in your details, orsimply send an email to firstname.lastname@example.org.Keeping clients informedRedViewsAd hoc white papers based on current hot topics and forward lookingthoughts – recent topics include: RPI to CPI, EMIR, Volatility Controlstrategies, Inflation-linked bonds, Moving from a Dirty to Clean CSA.RedVisionWeekly summary of market moves and news related to equity, credit,interest rate and inflation markets and roundup of latest pensionsnews.Commenting on industry developmentsRedBlogBlogs related to pensions, markets and economics by Redington andguest authors. Recent topics include: Smoothing, Equity RiskPremium, EMIR, RPI/CPI, RedSTART and Romanian horses.OutlineQuarterly collection of ten short, topical articles featuring key themesfor institutional investors as they seek to measure and manage risk-adjusted returns.Creating opportunities for pension fundsAsset ClassAnnual update of new opportunities and developments related to‘Flight Plan Consistent Assets’ – liability-matching assets withattractive, secure and inflation-linked cashflows.Risk-Adjusted ReturnQuarterly update of risk-adjusted performance across asset classesfor the past one, three and five years, ranked using their SharpeRatio. Covers credit, equity, risk parity, hedge funds andcommodities.