Focus on investment risk

Case studies

The background

A set of Irish DB Trustees appointed Jon Wolff to assist them with work they were undertaking to review the appropriateness of the risk that was being taken in the Scheme’s investment strategy.

Our solution

At first we took time to understand the Scheme’s funding and investment characteristics so that we could assess the level of financial support that may be required from the employer, given the downside risk in possible investment strategies that the Trustees were considering.

Once this was understood we conducted a detailed assessment of the employer’s financial and business risk in order to assess the scale of its potential cash flows and liquidity available to support pension scheme risk, after taking account of the cash needs of other stakeholders (e.g. internal investment requirements, trading and debt obligations and shareholder returns). We presented our findings to the Trustees at an investment sub-committee meeting.

Corporate change can often occur unexpectedly or quickly. For those sponsoring or managing pension schemes, the implications can be significant. DB pension liabilities and future DC pension arrangements, along with associated employee benefits, are a key consideration in any commercial transaction today.