How we helped our client to take advantage of de-risking opportunities without a reduction in returns, even when their employer covenant was weakening.
The background
Our client is an immature DB scheme, with a typically diversified investment portfolio.they had a healthy surplus in funding on the "Minimum Funding Standard" (MFS) basis. However, while their Scheme Sponsor supported the Scheme, but their future was uncertain. Our client was mindful that the employer was sensitive to increases in the contribution rate.
Given the healthy MFS surplus in the Scheme, the Trustees asked for our help to de-risk without reducing expected return, while remaining on track from a going-concern perspective.
Our solution
Our experts proposed a method to quantify and track the opportunity for de-risking. We put forward and alternative investment portfolio to reduce risk without reducing overall return. Going forward this meant that the client had superior liability matching as well as a framework to further de-risk the Scheme as opportunities arise.
We were able to deliver advanced training to the Trustees and other stakeholders to ensure that the new Liability Driven Investment approach and its implications were understood. We directed the implementation of the new investment portfolio, and negotiated reduced fees with the investment managers. We delivered pragmatic advice on the process for transferring assets to the new managers and suggested investment ideas to further diversify and maintain the expected return on the growth assets which were now a greater portion of the overall Scheme assets.
The results
The client now has a clear method to identify and act on opportunities to de-risk their assets, when they are ahead of their investment target.
The improved defensive asset strategy has resulted in better liability matching for our client. This will improve further as the Scheme matures and a greater portion of the overall Scheme assets become invested in the defensive portfolio.
