Andy Scott
“Because the markets have gone up in the past seven or eight years, people have almost forgotten that growth assets can go down as well as up.” Andy Scott, Dalriada Trustees
liabilities, but if you are looking at a scheme in run-off then, arguably, if you hold a corporate bond port- folio for the resulting cash-flows and don’t intend to sell those assets then you can look at how much of your benefits could you pay. That measure of volatility gives you quite a different answer to: “What’s my corporate bond worth?” Whether it’s DB or DC, having that objective crystal clear in your mind, and then managing and measur- ing volatility and risk relative to that, is key to making good investment decisions. Drewienkiewicz: Exactly. We have seen clients coming up to buyout thinking about having a measure of the corporate bond spread baked into the liability discount rate. They are mechanistically starting to reduce the volatility that they observe on the funding level, which is appropriate because you have a closer and closer match for the assets that the buyout provider is looking at to derive their price. So it’s context led. Datta: There’s a paradox here. For the DC investor the standard adage is that you need to take a long- term view, take the bumps and ride the volatility out because these are short-term market moves. If you try to be too clever with the time you have you are going to lose a lot of your wealth. That message doesn’t seem to get across terribly well. When individuals look at their pension statements and see that their £1,000 is now worth £800 they could disinvest at the wrong time. Institutional investors are supposed to be better informed but their ability to ride out funding level volatility
8 April 2019 portfolio institutional roundtable: Managing volatility
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