Liability Aware Investing

What we offer our clients

Our Liability Aware fund range includes a range of pooled fund “building blocks” that allow solutions to be tailored to the needs of small and medium-size pension schemes.

• Our Integrated Liability Plus Solutions (ILPS) fund range provides liability hedging plus exposure to a range of growth engines in a single fund, making efficient use of collateral.
• We are launching a range of “hedging only” LDI profile funds – two average (nominal and real) and two long (nominal and real) profile funds – to allow schemes to increase their hedging precision as they approach full funding.
• For maturing pension schemes where having to meet outgoing cashflows becomes an increasing need, we are launching a number of cashflow-aware credit solutions. Our range of Liability Aware CDI (Cashflow driven investment) funds are available to investors. Please see below for more details.

Integrated Liability Plus Solutions (ILPS)

Key Features

• We developed our ILPS funds to help our defined benefit pension clients control both asset and liability risks while maintaining their return targets.
• ILPS is a unique, innovative approach to liability management that integrates a cash-efficient return engine with leveraged liability hedging within a suite of single pooled funds.
• Since 2005, we have successfully used a similar approach to restore our own Standard Life Staff Pension Scheme to a sustainable surplus.

How does ILPS work?

Each £1 in an ILPS fund has two objectives:

• Hedging Portfolio - to provide c.£2 protection (i.e. hedge) against changes in the value of liabilities arising from movements in interest rates and (in the Real Funds) inflation expectations; and
• Growth Portfolio - at the same time, to seek a return over the long term on the £1 invested in the portfolios.
  • Liability Aware Absolute Return II Fund (LA AR II), targeting cash* + 3% per annum over rolling three-year periods.
  • Liability Aware Absolute Return III Fund (LA AR III), targeting cash** + 5% per annum over rolling three-year periods.
  • Liability Aware Equity Fund (LA Equity), a new addition to our ILPS fund range, targeting a return in line with passive global equity markets (MSCI All Country World Index).

*cash is defined as 3-month LIBOR

**cash is defined as 6-month LIBOR

Liability Aware CDI (Cashflow driven investments)

Background

Following closure to new members, many DB pension schemes are now becoming cashflow negative, i.e. where benefit outgo exceeds income from contributions and investments. Many schemes are therefore paying more attention to arranging their assets to deliver the income required to pay benefits, often referred to as “Cashflow Driven Investment” or “CDI”.

For larger pension schemes targeting self–sufficiency, a segregated approach may be appropriate; however, for small to medium sized pension schemes a pooled solution may be more suitable. Our Liability Aware CDI fund range can be used by pension schemes to create a bespoke cashflow payment profile that fits their particular scheme’s future cashflow requirements after allowing for contributions and income from other assets such as private debt or real estate.

The Liability Aware CDI fund range consists of five three-year “buckets”, allowing pension schemes to tailor their holdings to meet their cashflow requirements.

They are a series of maturity dated cashflow funds, managed on a buy & maintain basis that look to deliver a relatively predictable series of cashflow from a portfolio of nominal corporate bonds – with coupons and redemption proceeds paid out over time. The funds are expected to invest in nominal GBP corporate bonds only at outset.

These funds will be managed by our Fixed Income team. The team is very experienced at managing buy & maintain credit and has a strong track record of avoiding downgrades. For more information please visit our Fixed Income site