A brand new Made Simple Guide on Cashflow Driven Investment (CDI), written and sponsored by Schroders, has been unveiled at the Pensions and Lifetime Savings Association’s (PLSA) Trustee Conference 2017 in London.
Cashflow Driven Investment is a strategy employed by defined benefit (DB) pension schemes to match liability cashflows with a wide range of bond and bond-like assets which on aggregate offer a higher yield than a portfolio of government bonds alone. Interest in CDI has intensified since the financial crisis, due to a combination of pension schemes maturing, funding levels improving and an ever more diverse universe of fixed income or ‘contractual cashflow’ assets becoming available to pension schemes, making it increasingly important for trustees to understand this investment strategy.
PLSA Made Simple guides are an essential resource for people in the pensions industry. They are written in jargon-free English, and cover a range of technical issues.
Commenting Richard Butcher, Chair of the Pensions and Lifetime Savings Association, said:
“As DB pension schemes mature, trustees’ attention naturally turns to investment strategies that best fit their changing needs. Cashflow Driven Investment is one strategy available to trustees and this Made Simple guide is designed to explain this complex and growing area in plain English.
“I’d like to thank Schroders for writing this Made Simple Guide, which is an important addition to the PLSA bank of free guides available to anyone in the pensions industry who would like to know more about the latest developments in investment thinking and approaches.”
Jon Exley, Solutions Manager, Investment Solutions, at Schroders, commented:
“Few DB schemes have sufficient assets to invest entirely in government bonds to meet all future liability cashflows. To try to meet this shortfall schemes have traditionally matched only a proportion of benefit payments physically with gilts, while using higher-risk growth assets such as equities to fill the remaining gap. However, a CDI approach, together with liability driven investment (LDI), can provide a potentially attractive middle path with a large allocation to assets that can generate returns above gilts whilst also providing more certainty of outcome compared with the more traditional growth strategies.
“This guide explains what CDI is, how it works, who it is appropriate for, and the rationale for using it. It also covers monitoring and management of the solution so trustees can assess whether their CDI strategy does indeed ‘do what it says on the tin’.”
PDF versions of this Made Simple guide are available to download FREE from the Pensions and Lifetime Savings Association website. Printed copies are also available and can be ordered online at www.plsa.co.uk (£18 for members and £35 for non-members).