Femi Bart-Williams
“Journey planning is important. It is true it might not get you to the end of the swimming pool, but it can minimise the distance by which you might be short.” Femi Bart-Williams, Legal & General Investment Management
Bart-Williams: Investors get more risk averse as they get closer to their end goal, whether that’s buyout or self-sufficiency. Even if you don’t end up buying out there’s a great synergy between what a buyout- ready investment strategy looks like and what it looks like if you are paying the pensions yourself. After all there is some logic as to why insurers invest the way they do. It is not as binary as buyout or nothing; there are shades of grey in between. A sensible strategy towards the endgame will probably involve a lot of interest rate and inflation risk being hedged, a significant amount of corporate bonds and a little bit of extra return-seeking assets. PI: What about schemes that are 10 years away from buyout? Bart-Williams: You can probably distinguish between those who are close to an endgame, whatever that might be, and those who are significantly far away. If you are significantly far away that just necessitates taking some risk to plug the funding gap. The key thing you can do to manage that growth risk in the short term is to diversify your assets. So it’s not just equities but corporate bonds, emerging market debt and private equity, etc. We see draw-downs of about half on a diversified portfolio compared to equities. So you can manage risk in that way. LDI can help mitigate short-term volatility, so can equity protection. For instance, if mar- kets are relatively high and your funding level has benefited from that, it may be the time to buy some
April 2019 portfolio institutional roundtable: Managing volatility 11
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