articles

  • The latest draft of the revised IORP Directive was published on 27th March by the European Commission. The revised directive is aimed to achieve better governance of occupational pension schemes (Defined Benefit, Defined Contributions…Defined Ambition in the future), more informed communication with scheme members, remove obstacles for cross-border provision of services across EU and encourage schemes to invest in long term assets which support the growth of the real economy.   Here is the link to the revised directive: http://ec.europa.eu/internal_market/pensions/directive/ ...

  • In my previous blog, I outlined when it would be worth using a long-term risk model, and identified three fundamental reasons why you might need one. Taking a step back, how this applies in any situation will vary depending on what you’re trying to do. To frame the discussion, I shall use the example of a DB pension scheme. For a DB pension scheme, the risk is being unable to pay the pensioners, and the point of a model is to make better investment decisions. There is a simple framework for doing this: using a deterministic model, solve for the returns required to reach investment ...

  • An alternative way to manage interest rate risk launches today. NYSE Liffe’s ultra-long gilt future will offer a new way to gain synthetic exposure to gilts, the biggest challenge is whether it gains sufficient market interest to offer an ultra-long-term alternative. For pension schemes looking to hedge their long-term liabilities, the new ultra-long gilt future could well be of interest. It brings a number of potential benefits, however, its success is not guaranteed.   The new future will target a 30 year maturity, with a 4% implied coupon, £100k notional size a ...

  • Last week on Wednesday, the Chancellor announced the 2014 Budget. Although, according to the FT, in the run-up to the publication there were hints that George Osborne might “pull a rabbit from the hat”, not many had expected the kind of pension reform bombshell the Chancellor dropped.What Happened? In essence, the new law makes it possible for the Defined Contribution (“DC”) pension scheme members to withdraw their entire pension pot all at once upon retirement, without incurring a highly punitive tax, as it was the case so far. Before the change, the system was r ...

  • Last week was Learn Money Week - a global money awareness week celebration, uniting organisations with a shared goal - to financially educate the young. On Monday the 10th of March, at the launch of UK's Learn Money Week near MyBnk’s offices in Shoreditch, a variety of people from different backgrounds showed their support for financial education. Charities, fund managers, schools, pension schemes and social enterprises all were united in agreement that there is a need for educating young people about money.   Momentum is growing, with financial literacy officially enter ...

  • In a quest to reduce exposure to reinvestment risk are pension funds jumping out of the frying pan and into the fire by taking on more illiquidity risk, or is there a balance to be struck?   For many pension funds 2013 was a relatively good year. Developed market equities rallied (the S&P500 was up nearly 30%), credit spreads tightened and even real yields showed some improvements, albeit marginally so.   Those funds positioned to benefit from this would have seen their funding ratio rise, and for some, rise faster than anticipated by their flight plan. Those fortun ...

  • As we move from the year of the Snake into the year of the Horse, a few key movements in 2013 are worth a conscious review. In 2013, long term inflation expectations increased, with the 30 year zero-coupon RPI swap ending the year around 0.5% higher than it started at 3.74%. This compares to the lows of around 3.2% in 2012 and recent highs over 4% seen in 2008. Real yields generally fell back into negative territory over the course of the year.   Overall, interest rates in most major markets ended the year higher than they started. In the UK, long dated interest rat ...

  • Finance is, somewhat to my chagrin, not a science. This is in part a reflection of the complexity and chaotic nature of the system: a thorough, bottom-up understanding of how everything worked would include psychology, geography, and technology, to name but a few of the many, many factors that ultimately drive the markets. Moreover, even if that were possible, any successful model of the markets would soon have to include itself in its own predictions, and thus either be able to be simplified without being too significantly changed, or else be more complex than itself1. Neither seems part ...

  • Multi-asset funds have come a long way in the UK. Balanced funds employing static asset allocations dominated the scene during the 1990s and early 2000s. However with time, the sector evolved as there was increased demand for asset allocation to be performed within a fund.  The success of a number of managers in navigating the financial crisis was surely the finest hour for active asset allocation and a great endorsement for the sector as a whole in addition to those skilful managers. These days, we see a large spectrum of multi-asset managers within the UK and indeed a different na ...

  •   If you are a client of Redington, you will have often heard us espouse the importance of setting clear goals, designing an efficient strategy and ongoing monitoring. In my first blog of the New Year I would like to share what I have discovered personally over the past 12 months about starting with a clear goal, maintaining focus, finding your tribe, introspection and resolutions/commitments. Finding Focus 12 months ago, I left paid employment to enter the uncertain world of self-employment driven by the desire of spending more time with my young family. I ha ...