“As long as the music is playing, you’ve got to get up and dance.” – Charles “Chuck” Prince, Citibank CEO, 2003-2007 They say history rarely repeats itself, but it often rhymes. This week Parliament launched an inquiry into the collapse of BHS, a fixture on the British high street for the better part of the … More Is this DB pensions’ Lehman moment?
A few years ago, I worked at a very special and unique place called Redington where I had the privilege of advising a handful of multi billion pound defined benefit pension trustee boards on their investment and risk management policies. It was a multifaceted job that involved helping these boards define their funding objectives and … More What is the Sharpe Ratio of a buy-in?
Imagine you’re a trustee of UK defined benefit pension scheme and you’re in this quarter’s investment committee meeting. Just after the scheme secretary has gone though the actions log and before you hear your consultant’s latest investment idea, your actuary presents an update on your funding position. If you are like most UK pension schemes, … More Sonia discounting and the Whac-A-Mole world of LDI
On Tuesday Barclays announced its results for 2014. It was a report full of headline grabbing numbers, but behind the disclosures around provisions for credit losses, PPI mis-selling and an FX probe, the bank stated that it will put £4 billion into its UK defined benefit pension scheme as part of a schedule of deficit … More It’s still the elephant in the room
The challenges facing pension trustees and corporate sponsors are well understood, but the fundamental problem that both sides must ultimately solve is that in order to secure and protect member benefits, deficits have to be repaired before all member benefits are paid out; this is the key ALM challenge facing the UK pensions industry and … More ALM strategies: an integrated approach to investment and funding
One of the many after-effects of the financial crisis is that derivatives dealers have changed their pricing practices to take account of Credit Support Annex (CSA) terms. Because collateral terms often vary from bank to bank, these changes are making it difficult for pension schemes to compare pricing among dealers, manage their counterparty exposures, and … More Impact of CSA terms on swap valuations
“When the seller is ready, a buyer will appear.” Even in today’s negative real yield environment, demand from pension schemes for inflation-linked assets remains strong. Because they offer liability matching characteristics, pension schemes, for risk management purposes, have continued to pay, what they and their historical models, would consider to be expensive prices for inflation-linked … More Inflation-linked swaps with regulated UK utility companies and PFI projects
It may seem counterintuitive, but it is possible to invest in low yielding assets and generate attractive excess returns. Consider, for example, Japanese Government Bonds (JGBs). Since 2002, 10 year JGBs have yielded a measly 1.22% p.a., but their total returns exceeded yields by almost 1.00% p.a. with a volatility of just 3.88%. This equated … More Carry and rolldown: the hidden cost of waiting to hedge