Special Report: Liability Driven Investment is the most popular de-risking strategy among pension funds
Liability driven investment is the most popular choice for schemes looking to de-risk – more than half (59%) of respondents said they were actively considering it.
One scheme which has already taken the plunge is AkzoNobel, and this approach has helped them move 10% up the matching curve.
The scheme altered the length of its gilts and transferred some money over from equities, according to trustee Richard Waterbury.
One of the conditions of the sponsor company’s guarantee is that the scheme and sponsor must agree investment decisions, and the company thought this was a good use of money.
However expensive it was we went ahead and did it
“It reduces the risk to our pensioners, and therefore however expensive it was we went ahead and did it”, says Waterbury.
He says the scheme is in a better position now it has implemented a phased LDI strategy, but concedes that it could have been even better if they had waited a year.
So what are the next steps?
Rather than buy more gilts, (the plan) is to buy assets which are good substitutes
“Rather than buy more gilts, (the plan) is to buy assets which are good substitutes,” says Waterbury, on the advice of the scheme’s consultants at Towers Watson.
One example which he cites is social housing, which the scheme is seriously considering. They are not alone – 11% of respondents said they would feel comfortable investing in this asset class, which Waterbury says gives “a good, steady, income backed by a local government body or whoever it is, and a 1 or more percent better return than buying a gilt”.