Mijakowska: It comes back to the original point: what is it that you are trying to do. I don’t like people throwing the CDI term around without defining what the underlying problem is that they are trying to solve. This discussion has shown that people have different priorities. Obviously, the worry that you are trying to address is that to pay cash-flow you may have to sell your equities, which have gone down, say, 40%.


Just defining what the worry is and then trying to solve it as opposed to asking what an ideal CDI solution looks like or talking about it in general terms. There maybe four reasons why people want to do it, and depending on the reason the solution might be a bit different. Atkin: I prefer the term ‘cash-flow aware investing’ to ‘CDI’. This is a journey, each pension scheme has to make its own journey in its own way and according to its own requirements, “cash-flow” is just slightly shifting the philosophy. There’s no obvi- ous product here which everyone can go into and say: “That’s the solution.” It’s just changing the way people think slightly. Ghosh: The whole conversation around CDI has created a better mindset in the industry. It has stopped advisers scaring clients witless by saying: “If you don’t do LDI you are toast.”


It has also created a better recognition by pension schemes that path dependency will matter at a point in time and when it does you want to be thinking ahead about how you will deal with it. It has changed that philosophy and has got people thinking in a more balanced approach to solving their liability prob- lem.


When I refer to liabilities it is the cash-flows; it’s not what a lot of the industry default to in terms of the liability value and calling that the liability. Atkin: One of the challenges we face as an industry is that for so many years the products that asset managers have brought to market have been about asset management. Of course, everyone has known for many years that it is actually about liability management, it is about cash-flow management and trying to get asset managers to think as liability managers is going to be critical.


PI: With more and more schemes moving into alternative assets is the illiquidity premium disappearing? Halfon: If you look at the compression of yields for the past 10 years, yes, on average, as spreads over gilts and swaps have compressed, the illiquidity premium has also slightly compressed. But the market has found new areas where they can invest their cash, for example, going from mid- market loans to SME loans or micro credit where there is a demand from companies and there are healthy spread levels. You had to go down the capital structure and take different types of risk which at the beginning was investment-grade corporate bonds which became illiquids and what was high yield, let’s say, BB or B became CCC or CC. So down the capital structure and down the liquidity spectrum most of them led to maintaining some level of illiquidity premium. It is an evolving phenomenon. Greaves: There is a danger in labelling something as having an illiquidity premium just because of its


March 2019 portfolio institutional roundtable: CDI 15


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