For Investment Professionals only The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested.
Flexible and asset agnostic approach Why is a flexible and asset agnostic approach important? The first reason is risk mitigation: just adding more credit risk is not a solution to generating reliable cash-flows. It’s important to buy a broad diversity of assets, where the risks to cash-flow interruption are well-rewarded. A portfolio should reflect an indi- vidual scheme’s trade-off between return, risk and liquidity to meet a scheme’s specific cash-flow needs.
The second reason is that value shifts as markets evolve, which is why all cash-flows do not need to be matched at once. To achieve such flexibility, we keep some powder dry to access cash-flows as they become cheap. This is reflected in the fact that our own annuity books look very different from how they did 15 or 20 years ago.
Efficiency is key when building a bespoke annuity book that needs to evolve over time. Putting into prac- tice considerable resource, patience and discipline is the approach we have used to manage our own annuity books and cash-flow-matching portfolios for external clients.
This means not paying up for liquidity that is not needed in the short term. By broadening-out asset origination to capture, for example, illiquid opportunities that could generate higher cash-flows, some powder can be kept dry to capture value should it emerge. Taking such an asset agnostic approach can aid portfolio diversification and help achieve de-risking and the required cash-flow that is the ultimate goal for a pension scheme.
For Investment Professionals only. This document reflects M&G’s present opinions reflecting current market conditions. They are subject to change without notice and involve a number of assumptions which may not prove valid. Past performance is not a guide to future performance. The distribution of this document does not constitute an offer or solicitation. It has been written for informational and educational purposes only and should not be considered as investment advice or as a recommendation of any security, strategy or investment product. Reference in this document to individual companies is included solely for the purpose of illustration and should not be construed as a recommendation to buy or sell the same. Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. The services and products provided by M&G Investment Management Limited are available only to investors who come within the category of the Professional Client as defined in the Financial Conduct Authority’s Handbook.
M&G Investments is a business name of M&G Investment Management Limited and is used by other companies within the Prudential Group. M&G Investment Management Limited is registered in England and Wales under number 936683 with its registered office at Laurence Pountney Hill, London EC4R 0HH. M&G Investment Management Limited is authorised and regulated by the Financial Conduct Authority.
March 2019 portfolio institutional roundtable: CDI 21
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