Pension Funds

Endgame Portfolios and the Role of Credit

Endgame Portfolios and the Role of Credit

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Here are a few papers recently uploaded which have proved very popular with our pension fund members. Click on the paper's title to access it:

Endgame Portfolios and the Role of Credit (LGIM, 2016)
Pension schemes are maturing and an increasing emphasis is being placed on the endgame.

With the majority of pension schemes closed not just to new members but also to future accrual, this “endgame” involves either transferring liabilities and assets to an insurance company or other third party (buy-out), or alternatively running them off (self-sufficiency).

This excellent 17-page paper from Legal & General Investment Management seeks to establish a framework for designing endgame investment portfolios, for schemes that are working towards self-sufficiency.

A question for DB plan sponsors: To LDI or not to LDI (Vanguard, 2016)
This paper briefly compares the experiences of two different defined (DB) clients. One client chose LDI and the other, having initially considered LDI, decided not to adopt it. Philip C. Daubney compares these two experiences in both rising and falling rates environments, and both strong and weak equity markets. He considers the effects of the actual market environment not just on assets, but on the funded status of the plans.

Canary or Phoenix? Balancing the Key Drivers of Credit in 2016 (Goldman Sachs)
In recent months, corporate credit spreads have expanded measurably, as worries over China, recession and the direction of monetary policy have unsettled investors. This Goldman Sachs paper seeks to determine whether credit is a phoenix, capable of offering a dramatic rally, or a canary in the coalmine that will lead capital markets down.

UK Pensions De-Risking report 2016 (Willis Towers Watson)
Currently, only £150 billion of an estimated £2 trillion of UK DB pension liabilities have hedged longevity risk. More and more schemes are starting to consider a de-risking journey and how to manage risks. This report by Willis Towers Watson shines a light on current market activity. The authors also share their expectations for the future.

How much can retirees spend? The "virtual annuity" approach (Barton Waring & Laurence Siegel, 2016)
The authors of this paper propose the "virtual annuity" approach to help determine a retirees' spending rule. They state that every year, a pensioner should only spend the amount a recently purchased annuity would pay out that year - with a buying price that equates to the then-present portfolio value, with a price that includes number of years of required cash flows remaining and current interest rates. Investors who act in this manner will experience fluctuation in their consumption with asset values, but they can never be short of money.

Actively Navigating High-Yield Credit (Janus Capital, 2016)
Though commodities often steal the headlines, rising illiquidity in high-yield credit is a cause for concern that can be overlooked. Seth Meuer, Fundamental Fixed Income Portfolio Manager at Janus Capital, explores the risks associated with high-yield credit investing in today’s market.

When you visit Savvy Investor, you'll see why the site has become an instant hit with investment consultants, pension funds, CIOs, asset managers and other investors. 

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