Barry Kenneth – Interview
the shape of the assets into something mimicking what our investment portfolio runs.
Would it be a staged process whereby you transfer the most liquid assets first? No, the assessment period is where a cou- ple of big things happen. The first step is to ensure that the data is clean to fully understand what we are taking on. Schemes that are better funded than PPF levels have an opportunity to seek an insurance agreement, so they might not need us.
This operational process of cleaning the data happens outside of my team, so we do have time to plan for when the assets come in.
The assets then come in at the same time and we need to decide beforehand whether we will transition the assets out or just assume them because they fit our investment processes.
According to your latest asset allocation overview, around 40% of your portfolio is invested in liability-matched (LDI) assets and 41% in return-seeking assets. How has this played out in the current crisis? If you look at our portfolio simplistically, we have about 40% in government bonds, which back our LDI programme. We also use physical and non-physical instru- ments to manage interest rate and infla- tion risk as well as our external liabilities. You could say that 40% of our portfolio is there to manage liability risk and the rest is predominantly in return-seeking assets. Most of these assets are not bonds, with at least half are non-bond instruments. The reason why we have a relatively high bond allocation overall is because of the LDI programme, but we have investments in asset classes outside of bond-like instru- ments,
including private equity, real
estate, timberland, farmland and agriculture.
Are you considering any changes to your asset allocation?
Issue 93 | May 2020 | portfolio institutional | 17
We look at our asset allocation all the time. Coming into this pandemic, we effectively put lots of protection into our portfolio. Not necessarily because of this eventuality but because of Brexit and as asset prices where in normal times we would have been screaming “sell”.
So we have been overweight cash for a long time. In our listed equities portfolio, which is an active portfolio, we have allo- cated 20% to absolute return, so we could take the beta down but still have active management.
Our credit portfolio does not just hold UK
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