CBI Pensions Conference - Investment long term challenges and short term volatilitly

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Long Term Challenges and Short Term Volatility, discussed by Clifford Sims, partner, Hammonds LLP, Mark Garnett, director, Smith and Williamson and David Rowley, editor, Pensions Week

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CBI Pensions Conference - Investment long term challenges and short term volatilitly

  1. 1. CBI Pensions Conference 23 June 2009 Long Term Challenges and Short Term Volatility Clifford Sims, Partner, Hammonds LLP Mark Garnett, Director, Smith and Williamson Chair: David Rowley, Editor, Pensions Week
  2. 2. Introduction <ul><li>Key issues: </li></ul><ul><ul><li>To what extent should long term risks (inflation, interest rates and longevity) determine investment strategy? </li></ul></ul><ul><ul><li>Mark to market valuation of assets and liabilities: is there any way back? </li></ul></ul>
  3. 3. Defining Risk <ul><li>Is volatility the true measure of risk or </li></ul><ul><li>Is it the chance of not achieving expected return? </li></ul><ul><li>Volatility – Probability of equity outperformance </li></ul>
  4. 4. Sources of risk <ul><li>Hewitt Global Pension Risk Survey 2008 </li></ul><ul><li>Met Life Survey 2009 </li></ul>
  5. 5. Sources of Volatility <ul><li>Accounting standards: IFRIC14 and latest IASB proposals </li></ul><ul><li>Market participants and strategies: hedge funds and stock lending </li></ul><ul><li>Quantitative easing </li></ul>
  6. 6. Measures of Volatility Source: CBOE
  7. 7. Measures of Volatility <ul><li>Equity Risk Premium </li></ul>Source: Barclays Capital
  8. 8. Long Term Inflation Expectations Source: DMO
  9. 9. Capital Markets Solutions for Longevity Risks <ul><li>Longevity bonds </li></ul><ul><li>Longevity insurance </li></ul><ul><li>Longevity swaps </li></ul>
  10. 10. Concluding Thoughts <ul><li>No one solution fits all, but no reason not to deal with risks that can be managed </li></ul><ul><li>LDI is not the only risk management solution: liability led, rather than liability driven approaches are available </li></ul><ul><li>Beware of investment fashions! </li></ul><ul><li>Business philosophy and investment philosophy are not necessarily irreconcilable </li></ul>
  11. 11. Disclaimer <ul><li>In preparing this presentation we relied upon data supplied to us by third parties. While reasonable care has been taken to gauge the reliability of this data this presentation carries no guarantee of accuracy or completeness and neither Hammonds nor Smith & Williamson shall be held accountable for the misrepresentation of data by third parties involved. The views expressed in this presentation are of a general nature and are not a substitute for professional advice. </li></ul><ul><li>Hammonds/Smith & Williamson </li></ul>

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