Dan Mikulskis

Articles from Dan Mikulskis

  • Reflecting on the “Alternative to Alternatives”

    Part 6 of the Asset Class ‘Back to the Future’ series. Head of DB Pensions, Dan Mikulskis, looks at four key themes from the 2015 edition of Asset Class – what’s changed for pension schemes? ******************** What were some of the key themes of Asset Class 2015 and how have they fared in the two years since?  1. Illiquidity What did we say? Investing in illiquid assets has continued to be a theme for UK pension schemes.   Deficits had widened, the search for returns had become more pressing and trustees had become comfor ... ..read more
  • Eight Questions Trustees should ask following the Regulator’s Investment Guidance

    Today The Pensions Regulator has published new Investment Guidance for Defined Benefit Pensions Trustees. They have set their guidance out in six sections:      1. Governance      2. Investing to fund defined benefits      3. Matching assets      4. Growth assets      5. Implementation      6. Monitoring   In summary, the guidance is all very sensible and we are delighted to see a very strong alignment with the approach we have been using with our clients. Specifically, we would ... ..read more
  • My top 4 takeaways from the return-to-work programme

        Adjust your interview approach When we were interviewing for the program we met some incredibly capable individuals. But while they had skills and experience we thought the business could benefit from, we didn't always have defined existing role vacancies. On the one hand, this presented a great opportunity to think big-picture and add roles to the business for which there is a clear need. But it also presented a practical problem in an interview. You can't approach it with the standard interview mindset of “here’s a role, let me try and u ... ..read more
  • The future of DB: Let's focus on the real issues, not shock headlines

    What were the key takeaways from the Green Paper? Well, that probably depends which summary you read. While the headlines focused on the shock of potential changes, many in the industry actually saw this as a balanced and sensible account of the industry. Let’s step back for a second - in a race to get column inches it’s easy to feed mainstream press with stats and headlines that would suggest the government has opened the floodgates for destroying the value of Defined Benefit pensions and allowing companies to change the promises made. The pensions industry could ( ... ..read more
  • The DB Landscape in 2016: Redington response to the PLSA's call for evidence

    Redington welcome the PLSA DB Taskforce’s work and focus on the challenges facing DB schemes. Click to tweet >> Redington welcome @thePLSA DB Taskforce work. Read our thoughts on the DB landscape here: http://bit.ly/2cF10rY via @Redington We have replied to the Taskforce’s Call for Evidence with our own views and experiences from working with schemes. Below is a summary of the key points from our response. Schemes face many challenges in a volatile macro environment. Generating the returns and contributions to give members financial security in retirement ... ..read more
  • 4 Key Investment Takeaways from TPR Statement

    At Redington we read with great interest the pension regulator’s DB funding statement 2016. I thought the four key takeaways from an investment perspective were: 1. Acknowledge the importance of negative cashflow, and plan for it. “As schemes mature, liquidity planning is becoming an important consideration, especially where the cash flow requirements represent a significant proportion of the scheme assets. Market developments may mean that schemes are forced to sell assets at lower than expected prices in order to meet cash flow demands. This could put increased pr ... ..read more
  • Liability Hedging - A Rock and a Hard Place

    Most pension scheme trustees would agree on one thing. Long-term interest rates are at low levels in the UK today (compared to their history). It’s easy to find explanations for this among economists. It's just as easy to find predictions they will go up, down, or stay the same. Unfortunately economists and markets have a poor track record of predicting interest rate moves. The point of this post is not to offer another view on interest rates.   If we believe rates are rising should we still be hedging? Pension schemes feel like they are stuck between a rock and ... ..read more

    The tax paid* on your overseas equity dividends is not usually top of the pile when talking about your investment strategy. However, the issue is significant. Long-term returns can vary by up to 0.5% p.a between two identical global equity indices due to the differing treatment of dividends*.   30 years to 31.12.2014 MSCI World Net Dividends Index Gross Dividends Index Return p.a. 9.1% 9.6% Excess p.a. 4.9% 5.4% Source: Bloom ... ..read more

    Many asset classes have experienced high (by historical standards) returns in recent years at comparatively low levels of volatility. Some equity indices for example have recently made new all-time highs. However plenty of risks remain. Investors and pension funds need to generate returns from their assets, but worry about what a big fall in their value could do to their position. Given this backdrop, it’s no surprise that strategies and approaches that look to control risk by curbing exposures at the most risky times are gaining popularity. One approach that we’ve bee ... ..read more

    Tail risk hedging seems to be a popular topic at the moment, why? Markets are at highs, but plenty of risks remain. While equity markets have rallied considerably in recent years – the equity market (as measured by the MSCI World Index) is up over 30% since Mario Draghi proclaimed the ECB had “removed tail risk for Europe” in September 2012 – with only short periods of losses (relative to history) and low levels of volatility, there are plenty of macro risks out there that could threaten stability. But at the same time there are diminishing opportunit ... ..read more

    There has been a flurry of activity in the longevity swap market over the last 12 months culminating in the mammoth £16bn transaction announced in July 2014 between the BTPS and Prudential. We appear to be seeing a big increase in the size of individual deals, as well as the overall number of deals. Why is this?   -          Anecdotally there are more firms willing to supply longevity hedging cover into the market, meaning that it has become more feasible for large (£5bn+) schemes to contemplate a transaction. Once ... ..read more

    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 ... ..read more

    Intuitively we know that one of the largest single risks facing a defined-benefit pension fund is longevity – that of its members living longer. Techniques exist to quantify this risk, but for several reasons it remains difficult for pension funds to properly “deal” with this risk within their existing framework:    1. It doesn’t feel like a risk when you only observe it every 3 years While longevity experience (actual vs expected deaths) can be monitored on an ongoing basis, the risk is only really crystallized every 3 years when the scheme actuar ... ..read more

    Since we last discussed the idea in the December 2012 issue of Outline, we have seen significant developments of the usage of volatility control in constructing benchmarks for equity allocations. Over the course of 2013, we have:   Worked with banks and clients to develop the principles behind a volatility controlled index, based on the MSCI World and Emerging indices; Developed a particular volatility calculation methodology, based on exponentially weighted measures (which give declining weight to older observations); Supervised the execution and impl ... ..read more

      Taper talk: search volume for taper related queries this year Ever since the world’s major central banks first started their various programs of liquidity injection and asset purchase, financial markets have for the most part existed in an odd world where, paradoxically, bad news on the economy was believed to hail increased asset purchases and therefore was positive news for the prices of equities, credit and sovereign debt.   This paradigm was shaken in May and June of 2013 as the Fed revealed to markets the circumstances under which it would begin to &ldquo ... ..read more

    Protecting members’ benefits from inflation leads to added complexity for pension schemes, even with the RPI-CPI debate closed (for now).UK Pension funds and inflation UK defined-benefit pension funds tend to have liabilities linked to inflation, due to the contractual revaluation of benefit payments for active and deferred members each year, and the annual increases granted on pensions in payment. Historically this risk exposure to (rising) inflation, and inflation expectations, was one of the largest risks facing pension funds, which has over time led pension funds more and more ... ..read more

    Back in January we took a survey of market expectations for the year ahead. The difference from many similar surveys was that we were asking about asset class volatility as opposed to returns. We didn’t expect these “instincts” to be accurately borne out in reality, but when we looked at the results we were interested to see whether expectations were for volatility to be greater or less than the previous year, and above or below the longer term averages since 2006. The results suggested that people were expecting volatility across asset classes in 2013 to be higher tha ... ..read more

    Research by Deutsche Bank helps pension funds understand differences between the models commonly used by asset managers and advisors to allocate their assets. Deutsche Bank (DB) recently published a substantial piece of work analysing different approaches to portfolio construction which makes a useful contribution to the existing material available on the issue. As DB rightly point out, historically there has been a focus among the institutional investor community on chasing “alpha adding” ideas such as individual trades, asset rotational theories or identifying star asset m ... ..read more

    (This article first appeared in the June 2013 edition of Investment & Pensions Europe magazine and is reproduced with kind permission)   The events of 2008-09 prompted a long hard look at traditional investment portfolios; they were found to be flimsy in the face of the crisis, despite according with principles enshrined in a half-century or so of academic research. Since then, academics and others have suggested ways in which portfolios could have been constructed to fare better. Here, we examine one such approach – risk parity. Portfolio construction has a ... ..read more

        1. Is Risk Parity a bubble? Let’s think about the generally accepted definition of a bubble : “trade in an asset at prices well above intrinsic value”. Experience shows that often, speculation (buying an asset in the hope of relatively quickly selling it on at a profit) is at the heart of bubbles. We can think of the market for South Sea stocks in the 1700s, Florida Real Estate in the 2000s or Technology stocks in the late 1990s as examples that all fit this description. Risk Parity does not. An investor does not buy a Risk Parity “asset” w ... ..read more

      When it comes to financial markets, instincts often turn out to be wrong. It’s that time of year when many organisations and publications conduct surveys of investment professionals and market participants to attempt to elicit a consensus on themes and views for the year ahead. Such surveys are always fraught with difficulty, and generally destined to be proven wrong with hindsight. Financial markets have a habit of producing unexpected outcomes. However, this one is a little different. Rather than trying to assess asset returns, we decided to approach the situat ... ..read more

    Q1 Are you saying Vol Control is a free lunch? No, in any given year it can and has delivered a worse result than other investment approaches, and it cuts out some of the spectacular up years equities have. Over the long term we have shown it delivers better risk adjusted outcomes (for example here and here).  Q2 What about transaction costs? Vol Control needs to be implemented on a liquid underlying with low spreads like FTSE futures. It is probably not practical to implement it on a single stock physical basis.  Q3 Are there any investable Vol Control futures? No, not yet ... ..read more

    “The fox knows many things, but the hedgehog knows one big thing” – Isaiah Berlin The Fund Management industry has recently seen an explosion in demand for mandates and benchmarks that seek to produce equity portfolios with reduced volatility. We find that these mandates typically take one of two approaches:     1. “Vol Control” approach: Volatility Control at an aggregate level through a de-gearing mechanism which depends on the level of volatility of the reference equity index     2. “Low Vol Stocks” approach: ... ..read more

    In a previous blog I highlighted the increasing importance of the choice of model for calculating the IE01 of an LPI liability, and hence the IE01 of a pension scheme.  LPI is the term commonly used for a liability that is linked to RPI but subject to caps and floors on the annual changes in RPI. From now on I will refer to this as L-RPI for clarity. The IE01 of a pension scheme is the sensitivity of the liabilities to a one basis point change in inflation. The conclusion of the blog was that the choice of model could have material impact on the hedging portfolio that best matches th ... ..read more

    Volatility Control is a simple investment approach which has been advocated by banks and asset managers for some time, but which has so far failed to gain significant traction among UK pension schemes. We believe this could be about to change and that Volatility Control may have a role to play within the mainstream approach to pension fund equity asset management.   Volatility Control as a concept is the management of an equity allocation through continual rebalancing between equity and cash holdings. At any given point in time, the volatility of the portfolio measured on a tr ... ..read more

    In the last six years or so, since Redington was founded, the terms PV01 and IE01 have become part of the language of pension scheme trustees and actuaries, when previously they were restricted to Fixed Income traders and structurers in investment banks. PV01 is the change in present value of an asset or liability for a 1 basis point change in the nominal yield curve used to value the asset or liability (usually the swap curve); IE01 is the change in present value of an asset or liability for a 1 basis point change in the implied inflation curve used to value the asset or liability (us ... ..read more

Dan heads up Redington’s DB Pensions business, having joined the firm in 2012. In this role Dan is responsible for overseeing and steering a business that provides investment advice to DB schemes, on both a retained and project basis, with over £350bn in total assets and pay the pensions of nearly a million underlying members. Dan’s focus is growing Redington’s market share in this area, with the end goal of helping more members reach financial security in retirement.

As a member of Redington’s investment committee Dan also has joint oversight for the investment strategy process, from investment modelling assumptions to fund manager recommendations.

Previously Dan held derivatives-trading focused roles at Deutsche Bank in Sydney, Macquarie bank and a macro hedge fund. Dan began his career in the Investment Consulting business within Mercer in London, where he qualified as a Fellow of Institute of Actuaries in 2007, and where he became a member of the Financial Strategy Group.

Dan holds a BA(Hons) in Mathematics from the University of Cambridge.

Connect with Dan on Twitter and LinkedIn.