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Case study

Constructing an effective and future-proofed DB investment strategy


How we helped a large semi state sponsored defined benefit scheme to conduct an independent strategy review post a recent actuarial valuation.

The background

The past decade of strong investment returns had resulted in this large scheme successfully meeting the challenge of their Funding Proposal. However, the increasing maturity of the scheme combined with the risk reserve requirements introduced by the Pensions Authority, meant the schemes investment strategy needed to be fundamentally reviewed. The client wished to ensure the optimal growth strategy with due cognisance of the risks on various liability measures, including going concern, minimum funding standard with the risk reserve both now and in the future. 

Our solution

We worked very closely with the in-house pension and investment team to understand the investment views of the trustees and sponsoring employer and to carefully model the future projected liabilities with and without future discretionary pension increases. This allowed us to clearly articulate to all stakeholders the key investment risks versus the schemes' liabilities on various liability measures and over strategically important timeframes. 

We also brought forward our most relevant investment ideas and articulated the latest investment trends we were engaged upon on behalf of peer DB schemes in the UK and Ireland. This included asset classes such as infrastructure, emerging market debt, customised buy and maintain credit portfolios, hedge funds and smart beta portfolios.

We engaged in a number of stakeholder discussions to agree a sensible menu of options for consideration over the medium term, along with helping to create a short list of candidate investment managers for future consideration in boutique asset classes. We proposed a sophisticated de-risking mechanism which will allow the trustees to capture investment and liability de-risking opportunities independently and in a trustee controlled fashion.

The results

The trustees were able to agree a menu of next steps to improve the diversification of the scheme assets in light of current market conditions. In addition, they now have a clear methodology to continue to de-risk the scheme as opportunities arise whilst maintaining a clear sight on the critical liability metrics and increasing the probability of reaching their agreed goals for the scheme.