Is It Too Late to Hedge?

Is It Too Late to Hedge?

10-second Summary

Nothing seems to polarise opinion in investment circles more than the level and future direction of interest rates. This is problematic, as moves in long-dated rates have been the main driver of Defined Benefit pension fund financial health over the last decade.
DB pension schemes that hedged their interest rate risks before the summer of 2016 will have had the pain of recent falls in interest rates partly or fully mitigated. But many schemes have not – with long-dated gilt rates now below 2%p.a. have these schemes now missed the boat? Is it too late to hedge? In this piece we take a balanced look at the arguments for and against interest rate hedging at these levels and provide a framework to help all stakeholders move discussions forward.

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Collateral Buffer

Collateral – How Much Is the Right Amount?

10-second Summary

Derivatives can be powerful risk management tools for pension schemes, but the amount of assets that need to be held as collateral (to provide a buffer against adverse market movements) needs to be set carefully and monitored regularly as part of the scheme’s overall strategic asset allocation. The amount is likely to be between 26% and 40% of assets, depending on which stage the scheme is in.

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Stages of a Pension Schems

How to Know Which Stage Your Scheme Is In

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

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Equity Alpha

Is Equity Alpha Worth Paying For?

10-second Summary

Investors are Paying for Equity Alpha, but are they getting it?

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.

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Fund Deficit Banner

How can you adopt a more integrated approach to fund deficits?

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?