Cashflow driven investing
Cashflow solutions in action: from LDI to physical bonds
5 min read 5 Jun 19
Summary: How do cashflow solutions work in practice? This case study shares our recent work with a large UK defined benefit pension scheme to transition from significant swap exposure to a cashflow solution based on physical assets.
- A pension scheme’s transition to a fully cashflow-driven mandate is evolution rather than revolution, usually a series of events over time
- We worked with the trustees and consultant of a large UK defined benefit pension scheme to reduce the complexity of the scheme’s liability-driven investment (LDI) portfolio and increase investment in physical matching assets
- We substantially simplified the scheme’s interest rate and inflation swaps, which resulted in the release of a significant amount of gilts from the collateral portfolio
- The transition to physical bonds offered the scheme potential for additional yield and opportunities to smooth the cashflow profile
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.