difficult to distinguish between good and bad valued corporate bonds, then intra, and inter, market vola- tility could return and that could be advantageous to active managers. I’m not sure that it will necessarily play out that way because philosophically active management is skill- driven and, arguably, that should be evident whether it’s in volatile or less volatile markets. Scott: From a trustee point of view, I wouldn’t just switch to active management because volatility can also be your enemy. One of the ways to reduce volatility is through journey plans. By that I mean banking your gains when you are ahead of your target and also taking harder, riskier decisions when you are below it. This will keep the scheme within pre-agreed boundaries on its journey to its target position and whilst it might mean missing out on some of the good times, the scheme will not be over exposed to the bad times. It must be frustrating, however, for active managers who have done a great job only to be told to sell their good-performing investments because they are ahead of the game and transfer them elsewhere to safer corporate bonds or gilts. Drewienkiewicz: These marginally de-risking plans don’t make sense. There’s that final length of the swimming pool risk. If you are swimming slower every second and you don’t get it absolutely perfectly right then you get stuck and have no risk assets to get home. They need to be run with substantial buffers and a lot of caution around that. Maybe you can start with more risk than you would run if you just ran a lower level of risk for a longer period of time. Scott: If you know you are going to keep looking at it and adjust it appropriately. It’s not so much in the final length; in the final length you are pretty well de-risked and the employer is prepared to pay the 2% if it doesn’t get to the end. But when you are 10 or 15 years away you have to take risks to take advantage of the good times.


18 April 2019 portfolio institutional roundtable: Managing volatility


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