XxX | Feature Contents Editorial
DE-RISKING: IN THE DRIVING SEAT
Having a defined benefit (DB) pension must feel like holding a winning lottery ticket. The scheme guarantees to fund your retirement, no matter if you live for 150 years. What’s not to like? Well, while those who joined such a scheme can rest easy knowing that they will always have an income, it is a different story for the people guaranteeing these bene- fits. Having to generate enough cash each month to meet such obligations must be tough, especially as yields on investment-grade bonds have been low for a number of years.
Then there is the other issue. A corporate sponsor is responsible for any funding shortfall in the scheme. So, a £100m deficit will be seen by investors as a £100m debt, which could affect the company’s valuation.
It is understandable that scheme sponsors would prefer the responsibility for paying member benefits was passed to someone else. And that is what many of them are doing.
Almost three-quarters of Britain’s DB schemes are planning to insure their liabilities within 10 years in a market that is worth tens of billions of pounds a year. Overall, DB schemes are in a good place with many enjoying a funding surplus. This should put sponsors in a strong position to attract an insurer to free them of their burden. Yet the markets are full of uncertainty with inflation surging to highs not seen for decades, central banks ready to stop buying bonds and now we have war in Ukraine. So, how are trustees managing their portfolios as they close in on their endgame? You can read our thoughts from page 16.
Also in this edition, we look at how investors are not only working to turn extractive economies into regenerative ones but doing it in a “just” way where communities do not fall into poverty when mines are closed. There is an S in ESG, after all (page 24). We also take our quarterly look at diversity, asking how the issue can be incorporated into the investment process. Find out how from page 38.
Then we put hedge funds under the microscope, looking at how to find the right fit in an uncertain world. Our coverage starts on page 42. Finally, we speak to Robert Waugh, the chief executive and co-head of investment at Natwest’s £53bn pension fund, about the attraction of wood. The interview starts on page 12. We hope you enjoy the issue.
Mark Dunne Editor
m.dunne@portfolio-institutional.co.uk
Issue 112 | April 2022 | portfolio institutional | 3
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