David Hunter

18
Reducing Risk for Trustees, Members & Sponsors of UK Pension Schemes Valiance Emerging Capital & Investment Solutions

Transcript of David Hunter

Page 1: David Hunter

Reducing Risk for Trustees, Members & Sponsors

of UK Pension Schemes

Valiance

Emerging Capital & Investment Solutions

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• A clean sheet of paper

• Personnel perspectives:• private equity, venture finance, asset-backed lending & financing, pension fund

investment, manager research, multi-management, actuarial

• Insight and philosophy

• The long term = a series of medium term periods

• A niche focus:

Addressing the pension scheme deficits

of small / medium companies

Introduction & Background

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• Pension Scheme Deficits need….

UK Pension Scheme Deficits – The Challenge

Capital Investment Skills

+

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• Committed capital

• Alignment of interest

• Genuine client focus

• Funding deficits => a catalyst for change

Our Core Beliefs

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Commercial Positioning

Capital

Investment ImplementationTrustee Advice

Fund Managers

Ins. Co.s

Inv. Banks

Sponsor

Employees

Actuaries &

Consultants

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Demonstrating the Value for Corporates

Source: Valiance/Aon Consulting

Increase in business value*Solution Benefit Individual Combined

Clear

Match

BoostClear the deficitMatch existing actuarial returnBeat actuarial returnIncrease overall returns

Clear the deficit Match existing actuarial returnDeficit goes and doesn’t return

Clear the deficit 10-20%

0-5%

4-6%

N/a

10-25%

14-31%* Estimates vary based on specific circumstances and allocations

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• Ranking: Pari-passu with the pension scheme

• Consistent term: < 10 years

• Utilise existing available corporate assets

A Catalyst for Change

• Trustees reduce sponsor deficit credit risk

• Stimulates a broad employee benefits & contributions review

• Strong value from and rationale for changing the investments

Also

• Reduces regulatory input - due diligence and dividends

• Maximises cash flow benefit - get the tax deduction now

see also:

Property Letter of credit

Contingent assets: < IF > / < THEN >

Clear - Committed Capital & Alignment of Interest

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Committed Capital & Alignment of Interest:

The Valiance Investment Universe

MatchBeta Delivery

Boost Alpha sources

2.0 - 2.5

• Hedge FoF • Private equity• Infrastructure

Property

Equities

Single Strategy Hedge Funds

CreditCorporate BondsGilts

A / BBB - rated via CDOs / CDSs

AAA / AA-rated Long Only Unconstrained

130 / 30

Mix of Alpha & Potentially

Diversifying Beta

Asset

Notes

RPI and Interest Rate Swaps

3.0 - 4.01.5 - 1.7

Lowest Cost

Enhanced returns

Lower Absolute / Real Volatility

Higher Risk & cost

Expected Long Term Real

Return (%pa)4.5 - 6.0+ 8.0+

…Other Diversifiers…

…Currency, TAA,

Commodities, Protected…

Typical Client Asset exposure Valiance focus

Risk Reducing / Passive Return Enhancing / Active

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UK Pension Schemes - Use of Derviatives

3

9

20

0

5

10

15

20

25

2004 2005 2006

Year

£b

n

Match - Rationale for UK Pension Schemes

Source: Watson Wyatt (estimates)

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Match - Credit-based Structured Products

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0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

Standard deviations

Rea

lise

d i

nve

stm

ent

loss

es

Equities - 20% vol

Equities - 15% vol

Equities - 10% vol

BBB CDO

Rationale for UK Pension Schemes

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• Designed to beat RPI + 6-8%pa through carefully selected alternative investments

• Our investors have seeded these funds

• If the investments out-perform, clients are able to reduce pension contributions - increasing business value

• A clear incentive: risk-adjusted outperformance benefits clients and ourselves

• True innovation:– pooled fund structure

– focused allocations to & active oversight of numerous alternatives/absolute return sectors

– avoid disappointment (over-diversification, “bulge” capacity management, index-replication)

– single vehicle for long term “alternatives” allocations for UK pension funds

Boost – The Valiance Alpha Fund

A Diversified Absolute Return Growth Fund

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Boost – The Valiance Alpha Fund

A Diversified Absolute Return Growth Fund

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Rationale for UK Pension Schemes

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• De-risking pension schemes without the high costs associated with full LDI/matching

• Reduce sponsor deficit credit risk

• Existing exposures plus structured products and alternatives enhance efficiency and diversification

Summary of our solutions

CAPITAL + INVESTMENT

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• We work alongside existing advisers; we do not advise Trustees

• Stimulate an investment review, including consideration of “alternatives”

• ALM or similar liability assessment required, at least for swaps definition

• Ongoing role remains, including management / monitoring and allocation to assets

Impact on existing advisers

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• Prospects & channels

• The Pensions Regulator

• Consultants

• 7 Engagements – c.£900m of pipeline assets

Progress to date

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David Hunter

[email protected]

Valiance Limited

53 Chandos Place

London WC2N 4HSOffice: +44 (0) 20 7812 7355Fax: +44 (0) 20 7812 7338 www.valiance.co.uk

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