Cartwright: We are talking to clients about if this a sensible way to manage the risk and is an efficient use of capital. The insurers are making money. Whilst they are securing our members benefits, is that a way for the company to access those profit streams over the long term? It is an interesting discussion.


There are lots of hurdles to get over and it will not be the answer for everyone but is another option to get our members paid. Hartree: What is driving that self-sufficiency? Is it coming from the sponsor? Some companies see looking after employees to the grave as part of their mandate. So they might have some interesting illiquid portfolios. This is supportable, but will it flip if they get a new sponsor or a change on the trustee board? Then you have problems if you hold something you cannot transact. Cusack: Self-sufficiency means different things. To some it is a fully funded level with a buffer so the trustees can pay the expenses for the employer the scheme would be truly self-suf- ficient. They will need an income generator to provide that buffer as compliance costs go up and up. Then you have an age profile, which is mainly deferred, and a liquidity point that makes it an interesting dynamic. You are not just seeking to close a gap; you are seeking to pre- serve a position and meet the liquidity requirements for paying pensions. It is interesting when you take buyout off the table as some employers do not want to pay an insurance premium.


Where will the endgame market be in 10 years’ time? Cartwright: We will see greater capacity coming into the insur- ance world and could see £40bn, £50bn or £60bn worth of deals each year. Trustees will become more comfortable with the different options and more of them will be looking at the endgame. Most of their population will be pensioners and we need to have solved most of our problems because there is not a lot of time left when all your members have retired. Barron: There has been a lot of innovation, which we need to continue seeing. There is about £1trn of pension scheme liabil- ities looking to buyout or considering an alternative option. That means we might see a £50bn a year market which will have lumpy demand due to lots of schemes arriving during a good year for equities or when yields go up.


If we go back 10 years, LDI was not used by everyone, now it is widely used. Schemes heading towards buyout will see match- ing credit sensitivity in insurer pricing using tools like synthetic credit in the same way as LDI has been used to better match interest rate and inflation risk in the liabilities. Pickering: The biggest dividend of getting DB to a good place in 10 years’ time is that we can harness the brain power of Colin and Lucy to look after DC members. They need a lot of help given that the shareholder is not financially on the hook. It sad- dens me that so much brain power has been allocated to DB with DC almost standing for ‘Don’t Care’. In DC, the brain power is used for the benefit of the member rather than the shareholder. That is a big step forward.


Some companies see looking after employees to the grave as part of their mandate. So they might have some interesting illiquid


portfolios. Elizabeth Hartree, LawDeb


July–August 2022 portfolio institutional roundtable: Endgame investing


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