In order to help pension schemes achieve their goals, we believed asset classes could offer three things that could help fund deficits;
1. growth e.g. equities and private equities;
2. risk control e.g. Liability Driven Investment (LDI);
3. cashflow matching e.g. Investment Grade Credit (IGC)
We felt there were asset classes that offered all three benefits.
Captured in our table of investment ideas, we sorted these asset classes in order of ‘easiness’:
To what extent were they offering growth to fund the deficit?
To what extent were they hedging and reducing deficit volatility and therefore helping secure members?
What additional risks did they present?
How complex were they?
How accessible were they?
Reviewing this table today, this looks close to a value for money framework for assessing whether asset classes are good value for money.
What’s happened in the time that’s passed?
What we said&hel ...
I’ll admit, when I was first approached about the concept of taking on a “returner”, I can remember harbouring doubts.
I was concerned about the practicalities of taking on experienced hires (albeit often experienced in different fields) into an intense, technical and hectic environment on a temporary basis.
Would they be able to contribute? What if they weren’t able to work the same hours as everyone else? Would they learn quickly enough?
For me there was a specific challenge - the ability of the “returners” to participate evenly i ...
Prior to Kelly joining Redington, I had some misgivings about a “Returner” joining the Investment Consulting team, despite being very supportive of the "return to work" program and having been involved in the Returner recruitment process.
The Investment Consulting team is client-facing, requires specific technical knowledge across a wide range of finance topics, and has a very lumpy workload in line with the quarterly meeting cycle.
To me, this presented a challenge.
Namely finding enough interesting and useful things for our R ...
Mum, wife, fitness fan, finance professional, and now Returner. Spent most of my career in Investment Management, in product development and project management, before deciding to have some time out. During that break travelled the world as a family for 6 months experiencing the New England Fall, beaches of Hawaii and life on the road in New Zealand and Australia. My two young girls’ independent personalities are reflected in their fancy dress choice - Spiderman vs. Elsa. I have always believed I could be, or achieve, anything; my job now is that they go out into the wor ...
After more than ten years in private wealth management at Citibank and J.P. Morgan Chase in New York, I gave up my career when my husband’s job took us, along with our two-year old son, to Hong Kong. After the arrival of a second son in Hong Kong, I returned to the workforce in consulting, starting the day Lehman folded. Several years later, with the arrival of a third son and another global relocation on the horizon, I resigned yet again, this time to move our family to London. Not easily deterred from having a career, I joined the Credit Suisse returnship program in Lo ...
I started my career 1989 at Citicorp running a long/short Japanese equity derivative hedge fund before moving to the Japanese equity team at JP Morgan in 1996. In search of a better work life balance I moved to Mercer in 1998 and became the head of Manager Research for Europe in 2000. I really enjoyed the work and the people, but in 2003 when my daughter was born I decided to take a career break. Although I continued to monitor the markets I didn’t end up going back to work, until now. When the opportunity of the returnship at Redington arose, it provided a great chance ...
I began my career in 1998 in investment banking. Since then, I have worked in financial services in San Francisco, Boston and London in roles ranging from investment management to disputes and investigations consulting. I have three boys, ages 1, 3 & 5 years old. After having my first child, I returned to work for a year until having my second child. Instead of returning to work after my second maternity leave, my family and I relocated abroad due to my husband’s overseas posting. Upon returning to the UK and after having my third child, I decided to return to w ...
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 ( ...
This is an article I wrote in 2003. Thirteen years later, the debate is still raging! Original article can be found here.
There can be little doubt that the defined benefit pension scheme business is going through a bad time, with UK and Irish pension schemes still underperforming. To address this problem, going forward, pension schemes and their sponsors should establish a platform to understand, monitor and control their short-term exposure to both the assets and the liabilities
Did they see it coming? - For the most part, no. While both pension schemes and insurance companies ...
28 June 2005 – Market Diary
Avid readers of this column will know that ten days ago, with the real yield at a June ‘05 high of 1.56%, we drew a trend line and tentatively predicted that those levels wouldn’t last.
It’s not that the market believes the 2% 2035 index linked gilt is fundamentally too cheap at 120.03; this asset’s price is driven by supply and demand.
The five storey early 1800s Victorian home in Belgravia costs £15m, not because the price of bricks has gone up in Central London, but because the buyers have decided Eaton Squa ...
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 ...
On Friday, June 24th, Britain voted to leave the European Union. It’s fair to say this surprised a lot of people (on both sides), including the markets. Falling interest rates, a weaker pound and political uncertainty has left a lot of people feeling on edge.
For those of us responsible for managing pension funds, can it be useful to reflect on the “VUCA” of our time.
Volatility, Uncertainty, Complexity and Ambiguity
Derived from the US military and now used in corporate strategy, VUCA is a term used to describe extreme conditions. For those of us in the w ...
The ramifications for investors of the UK’s referendum decision will take some time to materialise.
We are entering uncharted territory - nobody knows precisely how Brexit will be implemented or its consequences.
What is clear is the result will herald a period of considerable uncertainty and market volatility.
If we have learnt anything from history, it is that these kinds of major events happen surprisingly regularly. Which is why it is so important to design and implement a robust, risk-managed and well-diversified investment strategy for the long term. And why it so imp ...
What are the economic implications, potential market impact, and consequences for UK pension schemes of Brexit?
In my previous post, I discussed the timeline for Brexit, should it happen, and split it into three periods: pre-referendum, post-referendum negotiations and post-negotiations.
The purpose of establishing these divisions was to emphasize that leaving the EU would not elicit an immediate step-change for the UK economy. The change would be gradual and the economy would behave differently in each period.
With that in mind, let’s consider (briefly!) the economic impli ...
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 ...
Automobiles started out as a toy for the rich, a symbol of excess.
They were complex and needed expert drivers. Then, Henry Ford came along and turned it all on its head. The Ford ‘Model T’ was revolutionary for its time - it helped bring cars to the masses and took the mystery out of the ‘horseless-carriage’.
Is the way we look at hedge funds not dissimilar to the infancy of the automobile industry?
Surrounded by mystery, a black box that’s reliant on the magic of manager skill, so-called ‘alpha’. People pay for things they don’ ...
Unless you have been living on Mars for the last few months...
In a cave, with your eyes shut, and your fingers in your ears...
It will have come to your attention that there will soon be a referendum on these shores.
Depending on your political hue, this referendum is one of two things:
An opportunity for the United Kingdom to unshackle itself from an ossified bureaucracy, to protect its borders, and to finally Make Britain Great Again.
A grave threat to the prosperity of the British people, which has been seized upon by political opportunists for personal ...
Alpha describes the excess returns a fund can generate relative to the return of a reference benchmark. This benchmark return is called Beta.
Traditionally, these benchmarks were market cap weighted indices, such as the FTSE All Share or S&P 500. Since the 1970's, it has been possible to buy cheap access to them via passive funds.
Click to tweet >> An increasing number of Smart Beta strategies have tried to improve on the market cap weighted benchmark: http://bit.ly/1Po1gnP
In recent years, an increasing number of Smart Beta strategies have tried to improve on the ...
The landscape for managing pension schemes continues to change..
Now, more than ever, pension trustees and corporate sponsors are facing a number of challenges: lower yields, sponsor balance sheet and new regulations to name a few. However, the fundamental problem still remains the same. To secure and protect member benefits, funding deficits have to be repaired.
In the past, deficit repair discussions have happened in a silo way. Every three years, trustees and sponsor would get together and have what is more of a negotiation over contributions, rather than aim to agree a long- ...
PRS is becoming an area of interest for institutional investors. Why?
First of all, what is it?
Private Rented Sector (PRS) is residential property that is not occupied by the owner but rented out by private (as opposed to social) landlords. The English Housing Survey suggests it currently represents 19% of the English residential market.
According to PIA Property Data Report (2014), the UK Private Rented Sector market is £839bn in size. To put that into context, the UK commercial property market is £683bn.
Why is it interesting for potential investors?
Clients often ask us to what extent our expected returns should adjust to changing market conditions. For an investment grade bond, this is relatively easy - you will earn the credit spread less any defaults. So it’s quite straightforward and objective. For equities, it is much harder to say whether the market is over or under-valued. There are lots of measures that appear to work historically, but interpreting the evidence is fraught with subtleties. One commonly used metric is the Shiller P/E ratio- but does the evidence hold up?
Shiller P/E Ratio
Click to tweet >> T ...
In our previous RedBlog post, my colleague Dan discussed how to incorporate expected rate rises into the liability hedging decision. In this piece I offer an alternative perspective on yields and liability hedging.
A Little Background
Over the last few years, many investors have delayed hedging as they believed that benchmark yields would increase, meaning that hedging would be cheaper later. These increases were expected as a result of the end of quantitative easing and central banks raising their historically low policy rates.
It has been a long wait.
Today, unemployment is c ...
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 ...
Opinions expressed on RedBlog and in any corresponding comments are the personal opinions of the original authors, not of Redington Limited. Some of the individuals posting to this site, including any moderators, work for Redington Limited. The content is provided for informational purposes only and is not meant to be an endorsement or representation by Redington Limited or any other party. This site is available to the public. No information you consider confidential should be posted to this site. By posting you agree to be solely responsible for the content of all information you contribute, link to, or otherwise upload to the Website and release Redington Limited from any liability related to your use of the Website. You also grant to Redington Limited a worldwide, perpetual, irrevocable, royalty-free and fully-paid, transferable (including rights to sublicense) right to exercise all copyright, publicity, and moral rights with respect to any original content you provide. The comments are moderated. Comments will appear as soon as they are approved by the moderator.
We are here
2 - 6 Austin Friars House
Phone. +44 (0)20 7250 3331
Subscribe to our regular newsletter here
We always like to hear from you, why not send us a message.