As the COVID-19 outbreak has escalated in the United States, sponsors of single employer–defined benefit pension plans have experienced a roller coaster ride. Avoiding, or at least cushioning, another wild ride requires a well-designed hedging strategy that accounts for credit spreads. We provide context for this rapidly evolving spread environment and potential responses.
April 2020
April 8, 2020 - The economic impact from the COVID-19 virus has been swift, creating a dichotomy between “risk-free” Treasury interest rates and corporate spreads. In this paper, we outline how hedging programs may need to re-align their strategies given the current circumstances while continuing to lean on the basics.
April 2020
Recent years have seen challenges for hedge funds and a shift toward low-fee passive and alternative risk premia (ARP) products in investor portfolios. In this paper, we investigate whether ARP and hedge funds are complementary or whether ARP funds are actually a viable replacement for hedge funds.
January 2020
While many plan sponsors have adapted to dramatic interest rate swings by strategically hedging their liability interest rate risk, some balk when interest rates are low. But failing to hedge long-duration liabilities with long-duration assets can expose sponsors to significant downside risk.
November 2019
A universal approach to portfolio construction can help schemes achieve required return targets whilst adding additional upside from alpha generation; reduce risk through true diversification; and generate sufficient income to comfortably meet both planned and unplanned cashflow needs.
November 2019
Elevated equity market valuations and potentially rising bond yields suggest the return environment for traditional risk assets could be difficult. Faced with this challenge, institutional investors are seeking alternative sources of return. Alternative risk premia (ARP) strategies—which harvest well-established risk premia and market anomalies across asset classes—may fit the bill. ARP strategies have exhibited low […]
September 2019
Yes, maintaining a well-hedged pension plan is prudent risk management.
September 2019
A number of UK defined benefit pension schemes have experienced significant funding level gains in recent years, driven by sponsor contributions, liability management exercises, and strong equity market returns. However, due to increased volatility in global equity markets, relatively high valuations in many market segments, and the late stages of the economic and credit cycles, optimising the scheme’s growth engine is more challenging than ever. This paper provides a framework for how to achieve that goal.
August 2019
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Managing Director, Pensions