Cashflow Driven Investing

Delivering on the Defined Benefit pensions promise

Managing cashflow delivery effectively

Adapting to a cashflow negative world

Defined benefit (DB) schemes, particularly in the UK, are maturing and the amount they need to pay out in benefits is therefore increasing.

As schemes mature, liquidity planning is becoming an important consideration, especially where the cashflow requirements represent a significant proportion of schemes assets.

Many schemes now are cashflow negative or facing the prospect of becoming so in the next decade. This challenge, combined with ever-decreasing liquidity in credit markets and rising transaction costs, amidst regulatory changes, means that trustees are increasingly exploring the potential benefits of adopting cashflow driven investment (CDI) approaches.

Find out more about cashflow driven investing
Watch our Mallowstreet University live debate - April 2019

  • What is cashflow driven investing, and why do pension funds need it?
  • How do you know if a cashflow strategy is suitable for your scheme?
  • Are their suitable cashflow driven investment strategies for smaller schemes? What governance resources are required?
  • How do you determine whether an asset class is suitable for a cashflow driven investment strategy?
  • How do you measure the success of a cashflow driven investment strategy?

Benefits of cashflow driven investing

A successful CDI strategy is one that reliably delivers predictable cashflows with the aim of paying pension benefits.

According to our recent research, UK pension funds and their advisors see three main benefits of adopting a cashflow driven investment strategy1:

  1. Investing to support alignment with the scheme’s ‘endgame’
  2. Providing a cost-effective method of paying members’ pensions
  3. Reducing exposure to short-term market events

Many schemes, whether larger ones targeting self-sufficiency or smaller ones targeting buy-out and self-sufficiency1, are already turning to CDI solutions to help reduce the risk of becoming forced sellers of assets and to plan for their cashflow requirements.

Buy and Maintain Credit at the heart of our solutions

At the core of our CDI solutions is our long-term Buy and Maintain credit approach. A fundamentals-based, investment grade credit solution with built-in Environmental, Social and Governance (ESG) factor analysis, it aims to maximise the security of clients’ future cashflows through:

  • Capital preservation – avoiding defaults and impairments
  • Predictability – delivery of cashflows over the long term
  • Credit returns – maximising the premium over gilts

 

Customising solutions to your needs.

Our CDI approach aims to meet pension schemes’ needs for intelligent, cost-effective ways to help secure their members’ benefits; providing a flexible, capital-efficient approach for managing pension payments and balance sheet volatility.

Recognising that each scheme is unique – size, funding level, risk appetite, covenant strength, endgame strategy – we partner with clients and their advisers to develop a solution aligned to schemes’ specific positions and aims, while retaining the flexibility to adapt to market conditions and any future changes in scheme objectives.

Investments involve risks, including the loss of capital.

Contact us to learn more.

“As pension funds mature, it is imperative that they focus on and define their endgame strategies. If a scheme has a self-sufficiency objective, as our research shows large numbers do, then ensuring that the cashflows are there when expected is vital. CDI can provide schemes of all sizes with the certainty they need to deliver on their long-term objectives.”
John Stainsby, Head of Client Group UK

 

Insights

04 June 2019

Defined benefit schemes: adapting to a cashflow negative world

With the vast majority of UK defined benefit pension schemes forecast to become cashflow negative in the next 10 years, it has become increasingly clear that the next challenge for pension scheme tru ...

30 May 2019

Pension Schemes: you're in the end game now

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26 June 2018

Investing in credit: Building robust portfolios for the long term

Institutional investors have long been investing in credit. The current credit cycle fuelled by the inflation of Central Banks’ balance sheets has however provided a relatively easy ride to credit in ...

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Opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. No guarantee, warranty, or representation is given as to the accuracy or completeness of this material. Reliance upon information in this material is at the sole discretion of the reader. This material does not contain sufficient information to support an investment decision.