Every pension scheme is unique. Each differs in its current position, where it is looking to go and also by the constraints it faces.
That said, there are commonalities which can help schemes understand where they are now and prepare for where they go next. Using the language of chess, we believe there are three distinct and progressive stages in which all schemes operate:
- Opening Game
- Middle Game
- End Game
The landscape for equity investors (whether DB pension funds, DC schemes or individuals) has changed and evolved hugely in recent years. Much of what was previously considered “alpha” can now be explained by well documented factors and systematic approaches. True alpha still exists beyond this, but equity portfolios probably need fewer managers than has been historically the case.
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 … Continue reading Liability Hedging – A Rock and a Hard Place
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. Continue reading “Introducing True Alpha”
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 … Continue reading How can you adopt a more integrated approach to fund deficits?
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 … Continue reading Liability hedging in a rising rate environment
EXECUTIVE SUMMARY Download the PDF version for offline viewing In May 2015 the UK reported its first year-on-year fall in the Consumer Price Index since the official CPI series began in 1996, with a -0.1% reading. Given pension schemes pay … Continue reading Should Pension Schemes Fear Deflation?
Summary: Implementing our investment principles means that it would be useful to measure the complexity of different assets and asset allocations via a complexity ranking. As complexity increases the average expected return tends to increase but the average fund manager … Continue reading Managing Complexity