This document provides an overview and history of liability driven investment (LDI) strategies. It discusses how LDI has evolved from initial liability immunization approaches to more sophisticated strategies that incorporate hedging to the funding ratio, time-diversified hedging, swaption strategies, and illiquid credit. The document also examines spending the risk budget between equities and interest rates hedging, how fully hedging impacts risk, and alternative hedging strategies like swaption collars. Finally, it provides context on government bond yields and how yields may still decline in countries like the UK.
This document provides an overview of Redington and BNY Mellon's iRIS pension risk management software. It summarizes Redington's services and experience helping pension schemes meet their goals. It then outlines 5 key challenges schemes face around funding, governance, investment returns, the economy, and the end game. For each challenge, it shows how iRIS provides tools to set goals, monitor progress, measure risk, and simulate scenarios to help schemes navigate uncertainties and stay on track. These include flight plans, risk telescopes, sensitivity microscopes, and scenario kaleidoscopes. The presentation emphasizes iRIS' role in providing clarity, accountability and transparency to pension scheme governance and decision-making.
This document analyzes JP Morgan Chase & Co. and provides a valuation using different models. Key points:
- JP Morgan is one of the largest and most established financial institutions globally, operating in consumer banking, corporate/investment banking, commercial banking, and asset management.
- Valuation models including a DCF model, dividend discount model, and relative P/TBV multiple yield target prices ranging from $67.53 to $72.15 per share, indicating the stock is undervalued at its current price of $53.07.
- The DCF model uses conservative assumptions around interest margins, loan growth, expenses, and return on tangible equity to derive a fair value estimate of $71.79
This document discusses long term investment perspectives and solutions. It begins by outlining common investment questions and problems clients face. It then provides principles for problem solving, including taking a long term view, diversification, and active asset allocation. Several charts show long term returns for various asset classes and indexes, demonstrating the benefits of equities and downsides of cash over time. It discusses MacroSolutions' approach of integrating top-down macro analysis with bottom-up stock selection and provides some examples of investment themes. Performance charts show the funds outperforming peers and delivering returns above inflation over multiple time periods. It concludes that a multi-asset class approach can solve most client needs and that active management adds value over the long term.
This document is a life insurance policy illustration for a Variable Universal Life Insurance policy for Valued Client. It provides assumptions used in the illustration, including personal details of the client, initial death benefit and premium amounts, investment allocations, charges, and other policy details. The purpose is to show how the underlying investments could affect the policy surrender value and death benefit over time. It also notes that rates of return and values shown are not guaranteed except where clearly labeled.
Zestlife is a South African insurance company that operates as an insurer using cell captives and provides health and life insurance policies. It has a joint venture with Liberty to sell Zestlife's gap cover product under the Liberty brand. The document discusses Zestlife's 2015 medical gap cover product, which protects members from shortfalls from medical expenses. Key benefits include covering shortfalls from practitioners charging above medical aid rates, co-payments with no annual limits, and extra benefits like cancer cover and accidental death cover. It also highlights how Zestlife's product compares favorably to competitors on issues like dependent coverage, co-payment cover, and cancer benefits. Optional benefits include extended cancer cover and a dentistry benefit.
In search of yield market perspectives september 2012Rankia
The document discusses how investors are searching for yield in a low interest rate environment. It notes that while yields are low globally, equity dividend yields remain relatively high compared to historical standards and fixed income alternatives. Specifically, developed international markets and select emerging markets offer reasonably valued markets with attractive dividend yields above 3%. While dividend paying equities present opportunities, some defensive sectors like US utilities appear overvalued given their popularity for yield seeking investors. The document recommends considering reasonably valued international markets and sectors like energy that offer both yield and potential upside.
How do investors achieve financial freedom? How do you establish your financial goals? Understand the benefits of diversification and following an asset allocation strategy.
www.Quantumamc.com
John J. Cortale Presents - Don't Let Media Headlines Cripple Your FutureJohn Cortale
John J. Cortale Presents - See beyond today’s worrisome headlines, take advantage of future trends, and put long-term investment strategies to work for you
This document provides an overview of Redington and BNY Mellon's iRIS pension risk management software. It summarizes Redington's services and experience helping pension schemes meet their goals. It then outlines 5 key challenges schemes face around funding, governance, investment returns, the economy, and the end game. For each challenge, it shows how iRIS provides tools to set goals, monitor progress, measure risk, and simulate scenarios to help schemes navigate uncertainties and stay on track. These include flight plans, risk telescopes, sensitivity microscopes, and scenario kaleidoscopes. The presentation emphasizes iRIS' role in providing clarity, accountability and transparency to pension scheme governance and decision-making.
This document analyzes JP Morgan Chase & Co. and provides a valuation using different models. Key points:
- JP Morgan is one of the largest and most established financial institutions globally, operating in consumer banking, corporate/investment banking, commercial banking, and asset management.
- Valuation models including a DCF model, dividend discount model, and relative P/TBV multiple yield target prices ranging from $67.53 to $72.15 per share, indicating the stock is undervalued at its current price of $53.07.
- The DCF model uses conservative assumptions around interest margins, loan growth, expenses, and return on tangible equity to derive a fair value estimate of $71.79
This document discusses long term investment perspectives and solutions. It begins by outlining common investment questions and problems clients face. It then provides principles for problem solving, including taking a long term view, diversification, and active asset allocation. Several charts show long term returns for various asset classes and indexes, demonstrating the benefits of equities and downsides of cash over time. It discusses MacroSolutions' approach of integrating top-down macro analysis with bottom-up stock selection and provides some examples of investment themes. Performance charts show the funds outperforming peers and delivering returns above inflation over multiple time periods. It concludes that a multi-asset class approach can solve most client needs and that active management adds value over the long term.
This document is a life insurance policy illustration for a Variable Universal Life Insurance policy for Valued Client. It provides assumptions used in the illustration, including personal details of the client, initial death benefit and premium amounts, investment allocations, charges, and other policy details. The purpose is to show how the underlying investments could affect the policy surrender value and death benefit over time. It also notes that rates of return and values shown are not guaranteed except where clearly labeled.
Zestlife is a South African insurance company that operates as an insurer using cell captives and provides health and life insurance policies. It has a joint venture with Liberty to sell Zestlife's gap cover product under the Liberty brand. The document discusses Zestlife's 2015 medical gap cover product, which protects members from shortfalls from medical expenses. Key benefits include covering shortfalls from practitioners charging above medical aid rates, co-payments with no annual limits, and extra benefits like cancer cover and accidental death cover. It also highlights how Zestlife's product compares favorably to competitors on issues like dependent coverage, co-payment cover, and cancer benefits. Optional benefits include extended cancer cover and a dentistry benefit.
In search of yield market perspectives september 2012Rankia
The document discusses how investors are searching for yield in a low interest rate environment. It notes that while yields are low globally, equity dividend yields remain relatively high compared to historical standards and fixed income alternatives. Specifically, developed international markets and select emerging markets offer reasonably valued markets with attractive dividend yields above 3%. While dividend paying equities present opportunities, some defensive sectors like US utilities appear overvalued given their popularity for yield seeking investors. The document recommends considering reasonably valued international markets and sectors like energy that offer both yield and potential upside.
How do investors achieve financial freedom? How do you establish your financial goals? Understand the benefits of diversification and following an asset allocation strategy.
www.Quantumamc.com
John J. Cortale Presents - Don't Let Media Headlines Cripple Your FutureJohn Cortale
John J. Cortale Presents - See beyond today’s worrisome headlines, take advantage of future trends, and put long-term investment strategies to work for you
This document summarizes a meeting between Meyer Coetzee, Head of Retail, and Henk Kotze, PM Income Provider, on November 9, 2018. The agenda included a business update, discussion of the Prescient Income Provider fund, and the Prescient Balanced Fund. Key points included Prescient scaling up operations by focusing on people, operations, and strategy. An overview of Prescient's ownership structure post-BEE deal and staff share scheme was provided. The Prescient investment team and their experience was outlined. The Prescient philosophy of valuation-driven, risk-focused investing to maximize upside and minimize downside was discussed. Performance of the Income Provider fund since 2006, beating inflation and various market indices, was
The document discusses two investment products - the Absa Yield Enhancer and the Twin Fixed Return & Growth Protector.
The Absa Yield Enhancer is a 5-year investment linked to the performance of the S&P 500, Hang Seng China Enterprise, and Nikkei 225 indices. It offers the potential for an enhanced annual return and full capital protection if the indices do not fall by more than 40%.
The Twin Fixed Return & Growth Protector is also a 5-year investment with fixed returns of 25% of capital after 1 year and 25% of half the capital after 3 years. The remaining capital is linked to the Credit Suisse GEM 10% Risk Control Index, which balances
WINK Calgary presents "Learn to love your money - basics of investing"Patty Auger, CA, CFP
This document provides an overview of investment allocation and risk management strategies. It discusses asset allocation models for different investor lifecycles, including sample portfolios with varying risk profiles. Historical return and risk data is presented for the sample portfolios. The document also reviews relationship types with investment managers, such as advisory vs. fiduciary duty relationships. Timeless risk management strategies like sector and position limits are covered as well.
Asset Allocation in Taxable PortfoliosWindham Labs
On Tuesday, September 26th, we hosted Lucas Turton for a discussion on Asset Allocation in Taxable Portfolios. Lucas explored how to estimate the future value of a portfolio by considering assets on an after-tax basis, asset allocation and location for optimal tax efficiency, and best practices for tax loss harvesting and navigating the wash sale rule.
Why do people make irrational investment decisions? How to make sure you don't.netwealthInvest
Part of Netwealth's portfolio construction webinar series - Chris Inifer from Allan Gray presented to an audience on 12th July 2016 on how a contrarian investment approach may help protect against poor human decision making that are often driven by emotion and biases.
This document discusses trends in the financial advice industry and how advisers can add value. It notes that client loyalty is driven by company/brand, product/service delivery, and advice experience. Good client experiences are defined by service, tailoring advice to individual needs through teaching, and investment returns. The document shows that advisers can help boost returns by 1.4-4.8% through managing expectations and providing advice. It emphasizes that technology, tailoring advice, and teaching clients are important for client engagement and loyalty, especially among younger clients. The key is focusing on what clients value, demonstrating the value of advice, and using technology and goals-based planning.
Devon Energy held an investor presentation in October 2018 to highlight its strategic focus on capital efficiency, portfolio simplification, and improving financial strength. The company expects to exceed its $5 billion divestiture target by the end of 2018. Devon also outlined its $4 billion share repurchase program and plans to increase its quarterly dividend. The presentation emphasized Devon's commitment to optimizing returns and delivering capital-efficient cash flow growth through 2020.
Netwealth portfolio construction series - 2018 economic outlook with Roger Mo...netwealthInvest
- The document provides observations and reflections on markets from February 2018 by the Chief Investment Officer of Montgomery Global Equities Fund.
- It notes that many asset prices are at elevated levels compared to historical valuations while prospective returns are low. Several legendary investors are worried about the risk of a correction.
- Specific concerns are mentioned regarding high valuations of certain companies, the concentration risk in major US indices, and the large amount of margin debt fueling further rises in the US stock market.
- Downsides of the extended period of low interest rates are discussed, including rising asset bubbles across many classes.
- The outlook for commodity prices is uncertain given signs of slowing growth in China.
- However, the document
The document provides an overview of Redington's 7 Steps to Full Funding process for helping pension funds close their funding gap with minimum risk. The steps include:
1. Laying out clear goals and objectives and assigning tasks and responsibilities.
2. Building an LDI Hub (risk management toolkit).
3. Crafting the right investment strategy using a range of tools to fit the fund's needs and constraints.
4. Ongoing high-quality monitoring to continually track progress against objectives and guide changes as needed.
The document emphasizes the importance of goals and constraints at each step and of ongoing monitoring to navigate changes in pursuit of the original objectives. It presents Redington's process as a
Commercial Equity Partners Ltd believes that in both prosperous and tumultuous economic times, small investors deserve to find investment options that offer superior rates of return and provide stability during unpredictable times. Since 2006, we at CEP have been maximizing investment leverage, thus producing high-yielding returns for our clients.
John and Betty Smith, aged 60 and 58 respectively, have 4 children and 9 grandchildren. They recently sold their business and are looking to retire. They have $6 million in total assets including $5 million in investments. Their annual expenses total $280,000. They want to ensure a financially secure retirement while funding their grandchildren's education and other goals. A proposed asset allocation of 60% stocks and 40% bonds is projected to meet their needs with an 8.3% expected annual return.
On Wednesday, February 13th we were joined by Jon Kazarian, Director of Business Development at Windham Labs, for a conversation on Portfolio Construction and Evaluation.
Assistant: Assistant:
Paraplanner Paraplanner Portfolio Manager
Regulation: Regulation: Regulation:
IIROC FP Canada Portfolio Management
Fee: Fee: Fee:
Transaction based Hourly/Fixed/AUM AUM
Focus: Focus: Focus:
Products Planning Advisory
Client: Client: Client:
Mass Affluent Mass Affluent/HNW HNW
Execution Strategies
Lump Sum
- All at once
Dollar Cost Averaging
- Regular intervals over time
Value Averaging
- Buys more shares
This document summarizes Liberty's new Agile Retirement Range investment products. It introduces the Exact Income Fund, which guarantees the level of retirement income the investment can purchase. Investors choose an income amount at investment, and Liberty guarantees that level of monthly income at retirement. Fees are low, with no upfront fees and ongoing advice fees of up to 0.5% for the Exact Income Fund. The document outlines how the Exact Income Fund works, provides income options at retirement, and explains the benefits of knowing exactly what level of retirement income the investment can purchase. It encourages advisers to provide this new solution to better meet customer needs for guaranteed retirement income.
netwealth educational webinar - The evolution of asset allocationnetwealthInvest
On April 14, 2016 Tracey McNaughton, Head of Investment Strategy at UBS presented to financial advisers on the evolution of asset allocation during a netwealth educational webinar.
14 hartford funds hartford balanced income fund123jumpad
The document provides information about the Hartford Balanced Income Fund, including its strategy and performance. The Fund aims to provide growth potential through a balanced mix of 55% bonds and 45% stocks. It invests primarily in dividend-paying stocks of well-known companies and investment-grade corporate bonds. The Fund has achieved returns similar to stocks but with less risk and volatility. It emphasizes stocks that pay above-average dividends or are expected to increase their dividends, as these have outperformed non-dividend payers while experiencing less volatility. The balanced approach and focus on quality dividends and bonds helps provide simpler exposure to growth assets while reducing risk.
The document discusses options for debt and equity finance in the South West region. It begins with an introduction to the speakers and their backgrounds. Richard Davis then discusses various debt financing options available from Lloyds TSB Commercial such as overdrafts, term loans, and the Enterprise Finance Guarantee Scheme. Bruce Colley then presents on alternative funding sources to fill the gap between traditional bank lending and equity finance. He discusses the current lending context and median interest rates.
This document summarizes a presentation by Investec Investment Management Services on recent tax and legal updates in South Africa. It discusses recommendations from the Davis Tax Committee report on estate duty, the Taxation Laws Amendment Bill of 2015, and draft default regulations for retirement funds. Key points include increasing the estate duty abatement, aligning provident fund payout rules with other funds, and new requirements for retirement funds around default preservation, investment portfolios, and annuity options.
What Every Finance Leader Needs to Know About Unlocking the Strategic Value o...Proformative, Inc.
This document summarizes a panel discussion on the evolving strategic role of treasury. The panel discusses how treasury has moved from a transactional to strategic function by owning risk management, managing working capital, and embracing growth-driving roles. Treasury now plays a key part in areas like M&A due diligence, technology adoption, and relationship management across departments and with banks. The treasury function has expanded from cash processing to strategic planning, integrated risk oversight, and interactive communications across the enterprise.
This document discusses volatility controlled investing strategies for defined benefit and defined contribution pension plans. It begins with an overview of the challenges pension plans face in generating returns while managing downside risk. It then provides examples of how volatility control strategies work by varying equity market exposure in response to changing volatility levels. Key benefits of volatility control for pension plans include downside protection, lower costs compared to other protection strategies, and better risk-adjusted returns than passive equity exposure. The document also addresses common questions about volatility control and provides references for further reading.
Red views inflation-linked-bonds-issuance-and-pensions-liabilities-january-2013Redington
This document discusses the growth of the UK inflation-linked bond market and pensions' inflation-linked liabilities. While the inflation-linked bond market has quadrupled since 2005, it remains much smaller than pension schemes' inflation-linked liabilities. This mismatch is pushing real yields lower and limiting pension schemes' ability to match inflation risk. The document examines alternative sources of inflation-linked assets that pension schemes should consider to better match liabilities, such as infrastructure investments.
This document summarizes a meeting between Meyer Coetzee, Head of Retail, and Henk Kotze, PM Income Provider, on November 9, 2018. The agenda included a business update, discussion of the Prescient Income Provider fund, and the Prescient Balanced Fund. Key points included Prescient scaling up operations by focusing on people, operations, and strategy. An overview of Prescient's ownership structure post-BEE deal and staff share scheme was provided. The Prescient investment team and their experience was outlined. The Prescient philosophy of valuation-driven, risk-focused investing to maximize upside and minimize downside was discussed. Performance of the Income Provider fund since 2006, beating inflation and various market indices, was
The document discusses two investment products - the Absa Yield Enhancer and the Twin Fixed Return & Growth Protector.
The Absa Yield Enhancer is a 5-year investment linked to the performance of the S&P 500, Hang Seng China Enterprise, and Nikkei 225 indices. It offers the potential for an enhanced annual return and full capital protection if the indices do not fall by more than 40%.
The Twin Fixed Return & Growth Protector is also a 5-year investment with fixed returns of 25% of capital after 1 year and 25% of half the capital after 3 years. The remaining capital is linked to the Credit Suisse GEM 10% Risk Control Index, which balances
WINK Calgary presents "Learn to love your money - basics of investing"Patty Auger, CA, CFP
This document provides an overview of investment allocation and risk management strategies. It discusses asset allocation models for different investor lifecycles, including sample portfolios with varying risk profiles. Historical return and risk data is presented for the sample portfolios. The document also reviews relationship types with investment managers, such as advisory vs. fiduciary duty relationships. Timeless risk management strategies like sector and position limits are covered as well.
Asset Allocation in Taxable PortfoliosWindham Labs
On Tuesday, September 26th, we hosted Lucas Turton for a discussion on Asset Allocation in Taxable Portfolios. Lucas explored how to estimate the future value of a portfolio by considering assets on an after-tax basis, asset allocation and location for optimal tax efficiency, and best practices for tax loss harvesting and navigating the wash sale rule.
Why do people make irrational investment decisions? How to make sure you don't.netwealthInvest
Part of Netwealth's portfolio construction webinar series - Chris Inifer from Allan Gray presented to an audience on 12th July 2016 on how a contrarian investment approach may help protect against poor human decision making that are often driven by emotion and biases.
This document discusses trends in the financial advice industry and how advisers can add value. It notes that client loyalty is driven by company/brand, product/service delivery, and advice experience. Good client experiences are defined by service, tailoring advice to individual needs through teaching, and investment returns. The document shows that advisers can help boost returns by 1.4-4.8% through managing expectations and providing advice. It emphasizes that technology, tailoring advice, and teaching clients are important for client engagement and loyalty, especially among younger clients. The key is focusing on what clients value, demonstrating the value of advice, and using technology and goals-based planning.
Devon Energy held an investor presentation in October 2018 to highlight its strategic focus on capital efficiency, portfolio simplification, and improving financial strength. The company expects to exceed its $5 billion divestiture target by the end of 2018. Devon also outlined its $4 billion share repurchase program and plans to increase its quarterly dividend. The presentation emphasized Devon's commitment to optimizing returns and delivering capital-efficient cash flow growth through 2020.
Netwealth portfolio construction series - 2018 economic outlook with Roger Mo...netwealthInvest
- The document provides observations and reflections on markets from February 2018 by the Chief Investment Officer of Montgomery Global Equities Fund.
- It notes that many asset prices are at elevated levels compared to historical valuations while prospective returns are low. Several legendary investors are worried about the risk of a correction.
- Specific concerns are mentioned regarding high valuations of certain companies, the concentration risk in major US indices, and the large amount of margin debt fueling further rises in the US stock market.
- Downsides of the extended period of low interest rates are discussed, including rising asset bubbles across many classes.
- The outlook for commodity prices is uncertain given signs of slowing growth in China.
- However, the document
The document provides an overview of Redington's 7 Steps to Full Funding process for helping pension funds close their funding gap with minimum risk. The steps include:
1. Laying out clear goals and objectives and assigning tasks and responsibilities.
2. Building an LDI Hub (risk management toolkit).
3. Crafting the right investment strategy using a range of tools to fit the fund's needs and constraints.
4. Ongoing high-quality monitoring to continually track progress against objectives and guide changes as needed.
The document emphasizes the importance of goals and constraints at each step and of ongoing monitoring to navigate changes in pursuit of the original objectives. It presents Redington's process as a
Commercial Equity Partners Ltd believes that in both prosperous and tumultuous economic times, small investors deserve to find investment options that offer superior rates of return and provide stability during unpredictable times. Since 2006, we at CEP have been maximizing investment leverage, thus producing high-yielding returns for our clients.
John and Betty Smith, aged 60 and 58 respectively, have 4 children and 9 grandchildren. They recently sold their business and are looking to retire. They have $6 million in total assets including $5 million in investments. Their annual expenses total $280,000. They want to ensure a financially secure retirement while funding their grandchildren's education and other goals. A proposed asset allocation of 60% stocks and 40% bonds is projected to meet their needs with an 8.3% expected annual return.
On Wednesday, February 13th we were joined by Jon Kazarian, Director of Business Development at Windham Labs, for a conversation on Portfolio Construction and Evaluation.
Assistant: Assistant:
Paraplanner Paraplanner Portfolio Manager
Regulation: Regulation: Regulation:
IIROC FP Canada Portfolio Management
Fee: Fee: Fee:
Transaction based Hourly/Fixed/AUM AUM
Focus: Focus: Focus:
Products Planning Advisory
Client: Client: Client:
Mass Affluent Mass Affluent/HNW HNW
Execution Strategies
Lump Sum
- All at once
Dollar Cost Averaging
- Regular intervals over time
Value Averaging
- Buys more shares
This document summarizes Liberty's new Agile Retirement Range investment products. It introduces the Exact Income Fund, which guarantees the level of retirement income the investment can purchase. Investors choose an income amount at investment, and Liberty guarantees that level of monthly income at retirement. Fees are low, with no upfront fees and ongoing advice fees of up to 0.5% for the Exact Income Fund. The document outlines how the Exact Income Fund works, provides income options at retirement, and explains the benefits of knowing exactly what level of retirement income the investment can purchase. It encourages advisers to provide this new solution to better meet customer needs for guaranteed retirement income.
netwealth educational webinar - The evolution of asset allocationnetwealthInvest
On April 14, 2016 Tracey McNaughton, Head of Investment Strategy at UBS presented to financial advisers on the evolution of asset allocation during a netwealth educational webinar.
14 hartford funds hartford balanced income fund123jumpad
The document provides information about the Hartford Balanced Income Fund, including its strategy and performance. The Fund aims to provide growth potential through a balanced mix of 55% bonds and 45% stocks. It invests primarily in dividend-paying stocks of well-known companies and investment-grade corporate bonds. The Fund has achieved returns similar to stocks but with less risk and volatility. It emphasizes stocks that pay above-average dividends or are expected to increase their dividends, as these have outperformed non-dividend payers while experiencing less volatility. The balanced approach and focus on quality dividends and bonds helps provide simpler exposure to growth assets while reducing risk.
The document discusses options for debt and equity finance in the South West region. It begins with an introduction to the speakers and their backgrounds. Richard Davis then discusses various debt financing options available from Lloyds TSB Commercial such as overdrafts, term loans, and the Enterprise Finance Guarantee Scheme. Bruce Colley then presents on alternative funding sources to fill the gap between traditional bank lending and equity finance. He discusses the current lending context and median interest rates.
This document summarizes a presentation by Investec Investment Management Services on recent tax and legal updates in South Africa. It discusses recommendations from the Davis Tax Committee report on estate duty, the Taxation Laws Amendment Bill of 2015, and draft default regulations for retirement funds. Key points include increasing the estate duty abatement, aligning provident fund payout rules with other funds, and new requirements for retirement funds around default preservation, investment portfolios, and annuity options.
What Every Finance Leader Needs to Know About Unlocking the Strategic Value o...Proformative, Inc.
This document summarizes a panel discussion on the evolving strategic role of treasury. The panel discusses how treasury has moved from a transactional to strategic function by owning risk management, managing working capital, and embracing growth-driving roles. Treasury now plays a key part in areas like M&A due diligence, technology adoption, and relationship management across departments and with banks. The treasury function has expanded from cash processing to strategic planning, integrated risk oversight, and interactive communications across the enterprise.
This document discusses volatility controlled investing strategies for defined benefit and defined contribution pension plans. It begins with an overview of the challenges pension plans face in generating returns while managing downside risk. It then provides examples of how volatility control strategies work by varying equity market exposure in response to changing volatility levels. Key benefits of volatility control for pension plans include downside protection, lower costs compared to other protection strategies, and better risk-adjusted returns than passive equity exposure. The document also addresses common questions about volatility control and provides references for further reading.
Red views inflation-linked-bonds-issuance-and-pensions-liabilities-january-2013Redington
This document discusses the growth of the UK inflation-linked bond market and pensions' inflation-linked liabilities. While the inflation-linked bond market has quadrupled since 2005, it remains much smaller than pension schemes' inflation-linked liabilities. This mismatch is pushing real yields lower and limiting pension schemes' ability to match inflation risk. The document examines alternative sources of inflation-linked assets that pension schemes should consider to better match liabilities, such as infrastructure investments.
What are the Current Dynamics Driving UK Pensions Investment?Redington
1) The document discusses various strategies and assets for UK pension investment, focusing on liability driven investments (LDI).
2) It provides examples of pension funds that implemented LDI strategies at different times, outlining how their allocations changed in response to market events.
3) The document promotes the use of a Pension Risk Management Framework and "Flight Plan" tool to help pension funds develop clear investment strategies and evaluate opportunities based on their objectives and constraints.
This document summarizes a presentation given by Robert Gardner of Redington on de-risking pension strategies and alternative investments. The presentation covers the current challenging economic environment for UK pensions, introduces the concept of liability driven investments (LDI) and dynamic de-risking, and provides examples of alternative investments that can provide long-term inflation-linked cash flows like infrastructure and social housing assets. The document emphasizes setting clear objectives and using a risk management framework to monitor investments and adapt strategies over time to better meet pension goals and de-risk liabilities.
This document discusses the evolution of liability-driven investment (LDI) strategies over nine years from initial immunisation approaches to more sophisticated holistic asset-liability management approaches. It also examines the growing toolkit of LDI assets available, including various types of swaps, linkers, and repo agreements. Finally, it provides an example of how changing market conditions like falling yields can impact the value of LDI strategies through roll-down and carry effects.
Alternative Inflation Hedging InvestmentsRedington
The document discusses alternative investments that can provide inflation hedging for pension funds and insurance companies. It notes that traditional inflation-linked bonds do not meet growing demand. Alternative investments discussed that provide inflation linkage include real estate long leases, ground rents, infrastructure debt, and utility swaps. These alternatives can offer inflation protection while providing higher returns than traditional bonds through credit risk premiums. The document advocates that pension funds consider a wider range of inflation-linked assets beyond traditional bonds and swaps.
A large UK pension scheme with a £3.5 billion deficit sought to reduce risk while maintaining returns. They implemented a volatility-controlled equity index with a put option to limit downside risk. This reduced equity risk exposure from 30% to 10% while delivering equity-like returns with lower volatility. It also lowered the cost of downside protection compared to purchasing puts directly on a passive equity index. The scheme's risk-return profile improved, allowing it to better fund its deficit over time with lower vulnerability to market stress.
The document discusses terminal portfolios and the end game for pension schemes. It provides:
1) An overview of terminal portfolios, which aim to allow schemes to continue paying benefits without deterioration to funding by targeting a low-risk asset allocation once fully funded.
2) Considerations for constructing a terminal portfolio, including setting required returns based on the discount rate and buffer targets, and how asset allocations may vary based on funding levels and credit spread assumptions.
3) The role of credit assets in terminal portfolios to generate returns above the required level while managing risks like liquidity, reinvestment and compatibility with potential buyouts.
1) Distressed investing provides opportunities for double-digit returns over the next 2-4 years due to high default rates from debt maturities, excess corporate leverage, and ongoing economic weakness.
2) Distressed funds invest in securities of financially distressed companies and aim to profit from improvements or extracting value through bankruptcy. Successful managers have industry expertise, strong analytics, restructuring experience, and relationships.
3) Distressed funds fall into the "return enhancer" category, providing moderate to high returns with some protection against downturns compared to stocks and bonds. Significant opportunities exist over the next few years as over $1 trillion in debt matures amid limited refinancing options.
The document discusses the implications of Solvency II on asset management for insurance companies. It covers the following key points:
1) Under Solvency II, asset values will be marked-to-market, which increases the perceived riskiness of equity and other assets compared to a book value approach. This will impact return on capital calculations for different asset classes.
2) There is debate around what interest rate should serve as the risk-free rate for discounting insurance liabilities, with options including swap rates, government bonds, or AAA-rated corporate bonds. The choice will affect capital requirements and surplus.
3) Sovereign debt from different countries may receive different capital charges under Solvency
This document discusses opportunities in illiquid credit strategies and provides an overview of several illiquid credit asset classes that could potentially replace some traditional equity allocations. It outlines seven steps to achieving full funding status with lower risk, including gaining access to liquid and illiquid credit strategies. Several illiquid credit opportunities are then analyzed in more detail, including their potential returns relative to liquid alternatives and important considerations. The document concludes with a discussion of implementing illiquid credit through a sample replacement portfolio and contacts for further information.
This short guide provides you with an introduction to how you can earn attractive returns of between 5-12% pa* by investing in Peer-to-Peer Loans secured against UK income producing Commercial Property.
*After fees, but before bad debts & taxes. Capital at risk
The document summarizes the Main Street Lending Program (MSLP) established by the Federal Reserve to provide support to small and medium-sized businesses during the COVID-19 pandemic. It describes the three types of loans offered through the program - the New Loan Facility, Priority Loan Facility, and Expanded Loan Facility. It provides details on loan sizes, terms, fees, and the role of the Federal Reserve and eligible lenders. It also outlines restrictions on borrower compensation, stock repurchases, dividends, debt repayment, and use of funds to qualify for the program.
Senior Commercial Real Estate Debt_Jan 2016Dharmy Rai
This document provides an overview and analysis of the senior commercial real estate debt market. It discusses the market opportunity created by banks reducing lending following Basel III regulations. Commercial real estate debt provides diversification benefits and attractive risk-adjusted returns. The document examines the commercial real estate debt asset class, major geographies including the UK market, and recommendations for investing in this space.
11 eaton vance volatility - the black widow returns123jumpad
Richard Bernstein warns that investors are again ignoring the risks of income investing strategies during a period of global credit deflation. He notes that high-yielding assets like MLPs, REITs, and emerging market debt have historically underperformed and faced higher risks during credit downturns. However, many investors continue to view them as "safe" or "opportunistic" despite abnormally high yields often indicating hidden risks. Bernstein argues sustainability of dividends and cash flows is more important than yield alone during the ongoing deflation of the global credit bubble. His portfolios focus on fundamentals suggesting continued dividend payments rather than stretching for income.
Investing in a Rising Rate Environment - Dec. 2011RobertWBaird
- Rising interest rates can negatively impact bond prices in the short-term but a focus on total return, which includes interest income, provides a more accurate picture of bond performance over time.
- An analysis of periods from 1994-2006 when the Federal Reserve raised rates found that while bond prices fell in the majority of months, interest income was positive every month and total returns were positive in 64% of months.
- Diversifying across different types of bonds can help mitigate the effects of rising rates as different bond segments perform variably depending on economic conditions. Professional bond managers employ strategies to offset negative impacts and maximize total returns.
The document outlines Redington's pension risk management framework, which provides tools to help trustees and sponsors meet objectives like reaching full funding by 2020 through regular monitoring of risk targets and performance indicators, and investing in assets that match the framework's "flight plan" like secured long-term leases, social housing, and infrastructure projects. The framework is meant to allow for calls to action to recalibrate the investment strategy and anticipate changing risks and targets.
The document provides an analysis of Land Securities Group PLC, a UK property company. It includes the following key points:
- Land Securities is the largest property company in the UK by market capitalization and is a member of the FTSE 100.
- The analysis estimates the cost of equity for Land Securities to be 6.78% based on the company's beta of 0.9 calculated from its market model, a market risk premium of 5.2%, and a risk-free rate of 2.1%.
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This document provides an overview of liability management in the context of interest rate risk. It discusses key concepts such as active vs passive liability management, interest rate risk, present value, duration, market value at risk, and cost at risk. It proposes four pillars of liability management: minimize bets on markets, avoid negative carry, exploit market inefficiencies, and diversify risks. Several examples and case studies are provided to illustrate concepts related to interest rate derivatives.
This document discusses the use of swaptions in a liability driven investment (LDI) framework for pension schemes. It provides examples of how pension schemes can use receiver and payer swaptions to hedge interest rate risk and lock in higher yields if rates rise. The document also explains how swaptions work, including details on strike prices, notional amounts, and expiration dates. It discusses how swaptions can help reduce a scheme's overall interest rate risk exposure compared to using only swaps.
Technology and Investing - Where to from here?Redington
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms.
The Impact of Technology on the Pensions IndustryRedington
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Prezi version: https://prezi.com/aadascppmnor/the-impact-of-technology-on-the-pensions-industry
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This document discusses considerations for designing retirement schemes for members. It highlights collecting data on members' current pension pots, contributions, ages and where they are in their retirement journey. The goal is to help employees securely plan their financial futures through empowering individual decision making with easy, attractive, social and timely communication. Technology like personalized pension apps and emotional connections are seen as ways to improve pension savings success.
"Hi Alexa, how should I save for my pension?"Redington
The document discusses various ways for people to save effectively for their pension. It recommends understanding where you are in your retirement journey, engaging members through education and technology, and using behavioral insights and personalized approaches to empower people to make good savings decisions. Gamification and simple ideas can help communicate complex choices. Members have different risk profiles and a one-size approach does not fit all, so pensions should be tailored individually. The goal is to help people save and invest adequately for a secure retirement.
Why we need to teach our children how to budget, save, invest and give backRedington
The document discusses the benefits of meditation for reducing stress and anxiety. Regular meditation practice can help calm the mind and body by lowering heart rate and blood pressure. Making meditation a part of a daily routine, even if just 10-15 minutes per day, can have mental and physical health benefits over time by helping people feel more relaxed and focused.
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1. Passion
2. Trust
3. Open Minded
4. Intellectual Curiosity
5. Numeracy
6. Collegiate
8. Prepare to challenge and be challenged
7. Seeing the wood for the trees
9. Prepare to stand out from the crowd
10. Make decisions and live with the consequences
Critical Friends - The Need for Straight TalkingRedington
This document summarizes a presentation on providing constructive feedback between pension trustees and their advisers. It discusses the need for "critical friends" to have honest conversations and help each other improve. A survey found that advisers rarely give critical feedback to trustees. The presentation advocates using a framework called "Radical Candor" to build feedback into the relationship through open and caring criticism. It encourages trustees and advisers to find a trusted partner to help them strengthen governance through respectful feedback.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms for those who already suffer from conditions like depression and anxiety.
The document discusses the shift from defined benefit pensions to defined contribution plans, with individuals taking on more responsibility for retirement savings. It notes this is an issue not just in the UK and explores strategies to reduce risks for individuals as they invest for the long term, including balanced income and asset allocation approaches. The document also discusses how financial technology and consulting are evolving to better serve individuals by offering personalized strategies and engagement.
"I haven’t told you the best part,” said Grandpa. “When you save your acorns, they don’t just sit there and wait for you. They grow into trees, and the trees give you more and more acorns.”
Join Oliver and Amelia as Grandpa teaches them the importance of saving. They hear the story of how the bears saved the monkeys. They learned about the consequences of wasting bananas, sharing berries and saving acorns. The best part is the acorns they save can grow over time into trees with more acorns.
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The document discusses the impact of Brexit on the UK property market and different property investment options. It notes that commercial rental markets are expected to weaken due to uncertainty after Brexit. It then discusses suspensions of redemptions in some UK property funds and notes that institutional money funds have experienced less redemption pressure. Finally, it outlines different property investment strategies and their risk-return profiles that may be suitable depending on whether a pension fund is in the opening, middle, or end stage of its funding journey.
Introduction and outlook of EU pension systemRedington
This document summarizes the pension system and challenges in Europe. It discusses the three pillars of pension systems: social security, employer pensions, and personal pensions. It then focuses on defined contribution pensions in the UK, including typical plan designs, contributions, taxation, and investment options. The document notes challenges like lack of financial literacy and planning. It proposes solutions such as personal retirement planning, lifecycle investment strategies, and education initiatives to increase participation and knowledge.
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This document summarizes an event discussing opportunities and challenges of financial market globalization. It presents examples from China and Japan showing how capital controls have limited China's contribution to global financial integration compared to its contributions to trade and GDP. It also discusses how financial institutions must innovate their business models to maintain growth as traditional sources of revenue decline. Overall, the document examines how globalization brings opportunities like expanded financing sources but also challenges like increased vulnerability to external shocks for financial markets and institutions.
What role do consultants play in the value chainRedington
The document provides contact information for Robert J Gardner including links to his Twitter and LinkedIn profiles and a request to get in touch. It lists two URLs for Robert J Gardner's social media profiles and a brief message asking anyone who sees the document to contact him.
Summary of the key messages from the 2016 Annual Funding StatementRedington
The document provides guidance for pension scheme trustees undertaking 2016 valuations from the Pensions Regulator. It emphasizes that an integrated risk management approach is key to assessing the risks impacting scheme assets and liabilities. Trustees are expected to set realistic investment return assumptions based on current market conditions. Most schemes will likely have larger deficits than expected and trustees should discuss increasing employer contributions or alternative options with employers where affordability allows. Trustees are also advised to focus on longer term risks and rewards rather than short term market volatility.
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This PowerPoint compilation offers a comprehensive overview of 20 leading innovation management frameworks and methodologies, selected for their broad applicability across various industries and organizational contexts. These frameworks are valuable resources for a wide range of users, including business professionals, educators, and consultants.
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13. The Double Diamond
14. Lean Six Sigma DMAIC
15. TRIZ Problem-Solving Framework
16. Edward de Bono’s Six Thinking Hats
17. Stage-Gate Model
18. Toyota’s Six Steps of Kaizen
19. Microsoft’s Digital Transformation Framework
20. Design for Six Sigma (DFSS)
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1. Private & Confidential 21st Century LDI 2 July 2013
21st Century Liability Driven Investment
David Bennett – Head of Investment Consulting, Redington
2 July 2013
2. Private & Confidential 21st Century LDI 2 July 2013
Executive Summary
History, Key Events and the Evolution of LDI
Spending the “Risk Budget”: Equities versus Interest Rates
o Risk Impact of Hedging to the Funding Ratio
To Hedge or Not to Hedge?
o The Impact of Roll-Down and Carry
o Developed Government Bond Yields: How low can UK yields go?
Alternative Hedging Strategies:
o Time-Diversified Hedging
o Swaption and Swaption Collar Strategies
o Illiquid Credit
Preparing for Central Clearing
LDI in a Wider Strategic Context: Pension Risk Management Framework and Case Study
2
4. Private & Confidential 21st Century LDI 2 July 2013
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
%
30-Year Gilt Real Yield (%)
Source: Bloomberg, Redington
4
History
5. Private & Confidential 21st Century LDI 2 July 2013
Boots pension scheme shifts out of
equities and into bonds
2001
• Head of Corporate Finance, John Ralfe, recognises
pension fund liabilities are bond-like in nature
• Allocation before rebalancing: 75% equities, 20% bonds,
5% cash
• Allocation after rebalancing: 100% long-dated AAA
sterling bonds, half of which is inflation-linked
Friends Provident hedges interest rate
and inflation risk with swaps
2003
• First non-bank to implement LDI hedging strategy
• Locked in a 2.1% real yield on 30-year index linked
gilts – the real yield today is below 0%
• Conventional wisdom at the time: “equities are the
biggest source of risk to a scheme’s funding level, and
real yields cannot drop below 2%”
Lehman Brothers collapses and new
opportunities arise
2008
• Lehman Brothers collapse shows robustness of
collateralised swaps
• The gilt/swap spread inverts
• Pension funds can take advantage of spread dislocation
and hedge via gilts instead of swaps
Key events in LDI
Eurozone Debt Crisis boosts safe haven
demand for Gilts
2010-2013
• Eurozone turmoil increases the appeal of Gilts as a safe
haven asset
• Gilt real yields turn negative for the first time ever at
the longer-dated tenors
• Despite recent optimism that policymakers may be able
to contain the crisis, real yields have remained below
zero, partly due to stubbornly high market inflation rates
5
7. Private & Confidential 21st Century LDI 2 July 2013 7
0
200
400
600
800
1,000
1,200
1,400
1,600
Demand Supply
GBPBillions
PPF 7800 Aggregate Scheme Liability Index-Linked Gilts Outstanding
Corporate Linkers RPI Swaps Outstanding
Source: Barclays, Pension Protection Fund, Redington
Potential demand for long-dated linkers
outweighs available stock of RPI-linked
assets and RPI swap market capacity
• The Pension Protection Fund 7800 Index of DB
schemes estimated aggregate liability of
£1,385bn at end of March 2013
• £280bn (inflation-uplifted notional) of index-
linked gilts outstanding
• £32bn of corporate linkers by market value (as
measured by Barclays GBP non-govt inflation
linked index)
• £100bn* of RPI Swaps outstanding
*Rough estimate from Barclays, based on general consensus
Market for Gilt-Based Hedging
8. Private & Confidential 21st Century LDI 2 July 2013 8
LDI 1.0
Liability Immunisation
LDI 2.0
The LDI “Manager”
LDI 3.0
Holistic ALM
• Interest rate and inflation
swaps
• Nominal and Index-linked
Gilts
• Gilt repo and TRS
• Bifurcation of interest rate
and inflation hedging
• Unfunded asset
exposures (e.g. Equity
futures)
• Corporate linkers
• Asset Swap Strategies
• Swaptions
• Sophisticated option overlays
• Flight Plan Consistent Asset
• Opportunistic Illiquid Assets
(e.g. Utility company inflation
swaps)
Evolution of LDI
Active LDI management
9. Private & Confidential 21st Century LDI 2 July 2013
Target Full Funding Date: 2030
Option 1: Increase equities from 40% to 60% (blue line to blue dotted line)
Option 2: Leave equities unchanged –ca.60bps increase in forward
curve (red line to red dotted line) is required to achieve the same target
funding date
Spending the “Risk Budget”: Equities versus Interest Rates
9
2.1%
4.6%
0.6% 1.2%
18.8%
4.8%
10.3%
22.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
PercentageofTotalLiabilities
Risk Type
Interest
Rates
Expected
Return:
Gilts +3%
(Equity
Risk
Premium)
What rise in
forward
rates would
give the
same
benefit as
the ERP?
Equities
Risk Budget
(e.g. 20% Value-at-
Risk)
What is the most
efficient use of
the Scheme’s
risk budget?
Sample Risk Attribution Chart
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
Millions
Liabilities Assets (Current Expected Return)
Sample Flight Plan Analysis
Impact of
60bp
forward
curve
shift
10. Private & Confidential 21st Century LDI 2 July 2013
Hedging Strategies
10
Hedging to the Funding Ratio
• Increasing the interest rate and inflation hedge ratios to the funding ratio minimises the funding ratio impact of real rate volatility
• This means the outperformance required from the Scheme’s assets remains relatively stable if real rates change
• The “risk budget” freed up by hedging real rate exposure can be recycled in order to increase the expected return
• Insofar as a Scheme can reliably increase expected return (for example, by investing in illiquid credit), hedging up to the funding
ratio effectively “lock in” margins over the required return
3.3%
3.6%
2.5% 1.9%
7.5%
11.4%
3.4%
5.5% 9.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Credit Risk Interest Rate Risk Inflation Risk Diversification Total
PercentageofTotalLiabilities
Impact on Risk of Increasing Hedge Ratio from 50% to 80%
11. Private & Confidential 21st Century LDI 2 July 2013
Government Bond Yields in Developed Markets
Whilst the 30-year UK government bond yield has fallen significantly since 2007, there remains scope for further
declines if compared to other developed markets, with German yields over 100bps lower and Japanese yields over
170bps lower.
11
30-Year Government Bond Yield
Source: Bloomberg
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
%
UK US Japan Germany France
UK: 3.62%
US: 3.62%
Japan: 1.85%
Germany: 2.52%
France: 3.34%
12. Private & Confidential 21st Century LDI 2 July 2013 12
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0 10 20 30 40 50
ParRate
Tenor
6m LIBOR Curve
par 1y fwd 3y fwd 5y fwd 10y fwd
• Carry occurs as a result of the
market pricing in rising short-term
rates. It is easiest to explain in the
context of a receiver par swap
(say 20 years)
• In the first year, the fixed leg is
larger than the floating leg – this
is the coupon income
• If rates follow the forward curve,
then the remainder of the swap
will have negative PV, to balance
the coupon income
• However, if rates do not rise as
priced in, the remainder of the
swap will have positive PV, as it
will be a 19y swap paying the 20y
rate; this is roll-down
Carry = coupon income + roll-down
Roll Down and Carry
13. Private & Confidential 21st Century LDI 2 July 2013
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0 5 10 15 20 25 30 35 40
Roll Down and Carry – Example
Gilt ZC ZC 5y'
Payment of £100m
13
2.55%
3.73%
• Imagine a payment of £100m in 20
years’ time
• The PV of this cashflow is £56m
• In five years’ time, the PV is
projected to be £58m based on
forward curve discount rate of
3.73%
• However, if rates don’t change the
PV is projected to be £69m
• This means if rates are unchanged
rather than rising as is priced into
the forward rates, the value of the
cashflow will grow by 3.51% per
annum
• To win the “we expect rates to
rise” bet, rates have to rise to
exceed the forwards
Tenor
Roll Down and Carry
14. Private & Confidential 21st Century LDI 2 July 2013
Hedging Strategies
14
40%
50%
60%
70%
80%
90%
100%
HedgeRatio
Original Plan
Plan After 1st Trigger
Plan After 2nd Trigger
Time-Diversified Hedging
• GOAL: To achieve full funding in x years; HEDGING OBJECTIVE: 100% hedged once fully funded
• SOLUTION: consider increasing hedge ratios over time
• This can be done by using fixed, periodic hedging increments combined with a trigger framework to hedge
opportunistically
• Triggers can be based on scheme-specific metrics such a funding level or required returns – agnostic regarding
catalyst for improved funding
Time-Based Hedging Combined with “Go Faster” Opportunistic Hedging
15. Private & Confidential 21st Century LDI 2 July 2013
Overview: Swaptions
15
Swaptions are options to enter into swaps
• The buyer of a receiver swaption has the right but not the obligation to enter into a swap where the option buyer
receives a fixed rate in exchange for paying a floating rate
• A payer swaption gives the buyer the right but not the obligation to enter into a swap where the option buyer
pays a fixed rate in exchange for receiving a floating rate
Receiver swaptions rise in value if swap rates fall; payer swaptions rise in value if swap rates rise
Potential uses
• Where a pension fund has exposure to falling interest rates, but expects rates to rise and therefore does not want to
lock in current levels, the purchase of a receiver swaption can offer protection against falling rates below the strike of
the swaption
• Similarly, if a pension fund has decided to hedge interest rate risk in a rising rate scenario, a premium can be earned
by selling a payer swaption with a high strike relative to current levels
• The combination of buying a low strike receiver swaption and selling a high strike payer swaption is known
as a collar
Swaption strikes can be determined in the context of the impact of interest rate moves on the required rate
of return to achieve full funding
17. Private & Confidential 21st Century LDI 2 July 2013
40
45
50
55
60
65
70
75
80
1M 3M 6M 1Y 2Y 3Y 4Y 5Y 7Y 10Y
Swaptionvolatility(bps) 17
Aim
• Increase protection
against interest rates
without locking in current
low level of rates
The Strategy – Swaption Collar
• Scheme buys a receiver swaption (offering protection against falling
rates) and sells a payer swaption (giving up some rate upside in
order to lower cost of the strategy). The strategy has two attractive
characteristics:
• PV01 profile: the interest rate sensitivity of the collar rises as
rates fall and decreases when rates rise, providing more
protection when it is needed and less when it is not
• Taking advantage of market expectations: if market
expectations of futures interest rates and volatility are met, the
value of the collar is projected to remain relatively stable over time
Outcome
• Attractive addition to
Scheme’s portfolio of
hedging assets
• The strategy has
outperformed an interest
rate swap with the
equivalent initial PV01
Source: F&C Investments
Higher volatility increases
the value of the swaption
Case Study: Swaption Collar Strategy Implemented in 2012
Buy Here
Sell Here
3 year DV01 profile
-700,000
-600,000
-500,000
-400,000
-300,000
-200,000
-100,000
0
-100 -80 -60 -40 -20 0 20 40 60 80 100 120 140 160 180 200
Rates shift (bps)
DV01(£)
Swaps Collar Payer
4.60 4.49
3.25
3.59
0.0
1.0
2.0
3.0
4.0
5.0
0 10 20 30 40 50
%
10Y Forward Curve Spot
Swaption Collar PV01 Payoff Profile Volatility Term StructureLIBOR Curve – Spot vs. 10Y Forward
18. Private & Confidential 21st Century LDI 2 July 2013
Enhancing Returns – Investing in Illiquid Credit
18
Higher-Rated
Lower-Rated
“Shorter-Dated” “Liability Matching”
Infrastructure
CRE Debt
Ground Rents
Long Leases
Aircraft Finance
Direct Lending
Distressed Debt
Checklist Description CRE Debt
Infrastructure
Debt
Flight Plan
Beneficial impact on
Scheme returns
Hedging Hedging benefits
Risk Budget
Beneficial impact on
Scheme risk
?
Collateral
Impact on collateral
requirements
Relative Value
Risk/return relative to
other opportunities
Implementation
/ Complexity
Time and governance
bandwidth required
Liquidity
Demonstrable illiquidity
premium
Mark-to-market
divergence
Resulting from hedging
characteristics being
marked to market
Illiquid Credit Opportunities
250bps over
Gilts after
defaults
350bps over
Gilts after
defaults
Illiquid Asset Checklist
Allocation to CRE debt out of credit
Enhance expected returns
Contractual cashflow
generation
Long-term investment in
infrastructure debt
Enhance expected returns
Liability-matching
20. Private & Confidential 21st Century LDI 2 July 2013 20
All standardised OTC
derivatives will be
cleared through
central counterparties
(CCPs)
Harmonised
framework for the
provision of clearing
services within Europe
Non-cleared
derivatives will be
subject to
strengthened
management
requirements,
including the need to
collateralise positions
All OTC and exchange
traded derivatives will
be reported to trade
repositories (TRs)
EMIR: Central Points
EMIR: Preparing for A Changing Market Environment
• European policymakers are introducing regulation
(termed “EMIR”) to reform the swaps market in
order to enhance resilience and increase
transparency
• These changes will make the swap market more
similar to the futures market, with trades cleared
through a central counterparty (CCP)
• Introduces additional rules and constraints that
pension funds should be aware of and prepare for
21. Private & Confidential 21st Century LDI 2 July 2013 21
Important information for pensions funds:
• Limited exemption from EMIR’s headline measure – the requirement to
clear OTC derivative contracts – until at least August 2015
• HOWEVER: For new trades there is no exemption from Initial Margin,
providing more incentive for these trades to be cleared early rather than
make use of the pension fund exemptions
• The other key provisions – the risk mitigation and reporting
obligations – will apply to pension funds. The EMIR obligations will take
effect on a phased basis from the beginning of 2013
Important questions for pension funds:
• Are you going to use your exemption from EMIR?
• Are your CSAs dirty or clean?
• How much free collateral do you have?
• What plans have you put in place for central
clearing?
* Timeline based on ESMA estimates
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
ESMA publication of
draft technical
standards
EMIR: Preparing for A Changing Market Environment
Technical standards
come into force
CCP Application
Deadline
NCA Authorisation of
CCPs
ESMA to submit draft
RTS on the clearing
obligation
Notification for the
clearing obligation
Reporting start date
(IRS, CDS)
Reporting start date
(all other asset
classes)
Key:
Technical standards – overall set of rules and regulation
Over-the-Counter (OTC) derivatives clearing
Central Counterparty Clearing (CCP) entities
Trade Repositories (TR) – maintains trade records
22. Private & Confidential 21st Century LDI 2 July 2013 22
Collateral Drag Example
Gold
Soft Commodities
EM Linkers
REITs
Index-Linked
Corporates
Network Rail
Long Lease
Property
Utility Swaps
Infrastructure
Debt
A B
Overall Expected Return: Libor + 250
N.B. Collateral drag effect only occurs if collateral needs require the scheme to sell return seeking
assets that were a part of the strategic asset allocation.
80%
20%
Matching Asset (£80Mn)
Expected Return: Libor + 312.5
Overall Expected Return: Libor + 250
Collateral (£20Mn)
Initial Margin
Variation Margin
Prudence Margin (Asset Manager)
Inflation
hedging
derivative
Matching Asset (£100Mn)
Expected Return: Libor + 250
Pension Fund X has £100 million to invest, requiring a return of Libor + 250bps and an inflation hedge. The scheme
has two options:
100%
24. Private & Confidential 21st Century LDI 2 July 2013
RAG Status Metric is at or above target Metric is within [10%] of target Metric is more than [10%] away
24
Objective Measurement (Assumed) Performance Indicators Performance (May 12) RAG
Funding
Objective
To reach full funding on the Technical
Provisions discount basis by [2023]
Expected Returns (ER) > Required Returns
(RR)
RR:
ER:
Difference:
Gilts + xxxbps
Gilts + 73bps
xxxbps
Investment
Strategy
Actual Returns should exceed Expected
Returns (implying outperformance)
Actual Returns (AR) > Expected Returns
(ER)
AR:
ER:
Difference:
Gilts + xxxbps
Gilts + 73bps
Xxxbps
Risk Budget
The investment strategy should not risk
the deficit worsening by [20%] of
liabilities over a 1-year period
VaR95 < 20% of liabilities VaR95: [xx]%
Hedging
Strategy
Nominal/Inflation hedge ratio should be
maintained within +/- 5% of the funding
ratio.
Funding Ratio (Technical Provisions basis) 84%
Nominal Hedge Ratio (TP basis) xx%
Inflation Hedge Ratio (TP basis) xx%
Collateral
Maintain sufficient eligible for the
purposes of covering margin calls that
may arise from the Scheme’s current
derivative positions over a 1 year period.
Total available eligible collateral >£[100]m
Potential collateral call after VaR95 event <£[100]m
Pension Risk Management Framework
26. Private & Confidential 21st Century LDI 2 July 2013
60%
65%
70%
75%
80%
85%
90%
95%
100%
Fundinglevel
Original Strategy Dynamic De-Risking Strategy
26
De-Risking Triggers
De-Risking Triggers
De-Risking Trigger
Re-Risking Triggers
Not Just A Real Yield View
27. Private & Confidential 21st Century LDI 2 July 2013
Key Conclusions
Ensure that real rate exposure is “right sized” to the Pension Fund
o Does the potential funding level benefit from rising (forward) rates justify the risk being
run?
Assess the true cost of not hedging in a static rate environment
o To win the “we expect rates to rise” bet, rates have to rise to exceed the forwards
Review the full range of hedging strategies and instruments
Ensure that existing LDI programmes are prepared for Central Clearing
27
28. Private & Confidential 21st Century LDI 2 July 2013
13-15 Mallow Street London EC1Y 8RD Telephone : +44 (0) 20 7250 3331 www.redington.co.uk
About Redington
28
Redington is an independent investment consultancy with a mission to design, develop and
deliver the best investment strategies for its client to reach their funding goals with the minimum
level of risk. We combine the practicality of an investment banking approach to investment
consulting with the best of actuarial analysis, which delivers clients clear, actionable advice. Our
clients trust us with over £250 billion of assets, and we advise ten of the 25 biggest pension
funds in the UK.
Recent Publications
IRIS: Monitor Risk. Measure Progress. Stay on Track.
Industry Awards
Investment Consultant of
the Year (2013)
Risk Management Firm
of the Year (2011, 2012,
2013)
Best Consulting Firm
of the Year
Pension Consultant
of the Year – 2012.
2013
Investment Consultant
of the Year
Specialist Investment
Consultant of the Year
David Bennett
Head of Investment Consulting
Direct Line: 0203 326 7147
david.bennett@redington.co.uk
Contact