PORTFOLIO BLENDER

DAVID BENNETT
CELEBRATES
FIVE YEARS AT
REDINGTON
page 10
TAKING YOU BEHIND THE SCENES
GET IN T H E M IX WIT H OU R N E W
INVESTIGATING
THE FUTURE
OF RETIREMENT
SAVINGS
INVESTMENT
PRINCIPLES, OUR
VALUES, LATEST
THINKING & MORE...
2015
Inside
CELEBRATING
5 YEARS OF
WORKING
WITH GHG
APR
P O RTFOL IO
B LEN D E R
DID YOU KNOW? Most people are relying on a private pension for their retirement income (Policy PPI)
Greetings!
Welcome to Redington Post which contains the most exciting developments related to Redington’s
business, people and latest thinking all in one place.
It’s been an exciting start to 2015. So far this year we are delighted to be working with 3 new
investment consulting clients, including Taylor Wimpey Pension Scheme and Rolls Royce &
Bentley Pension Fund.
This edition features Portfolio Blender, an analytical tool designed in-house to help clients make
more informed decisions faster (pages 6-7). The business news section (page 4) includes a brief
overview of The Age of Responsibility report, details of a St. James’s Place fund that Redington
helped to design and an update of RedSTART’s mission. Following the latest Budget, Lord Hutton
shares his thoughts on what the changes mean for the pension industry, savers and policymakers
(pages 8-9).
Also featured is the astonishing success of a small scheme with little governance budget that has
performed outstandingly during the market turbulence of the last few years (page 3). We would like
to celebrate and share their success following 5 years of working with Redington and Schroders.
You can access our latest thinking and notable press coverage on page 7, while on page 10 you will
find a Q&A with David Bennett. David is Head of Investment Consulting and has just celebrated his
5 year anniversary at Redington.
I hope you enjoy the newsletter and welcome your feedback on the second edition of Redington Post.
With kind regards,
Gurjit Dehl
Our inaugural Asset Class
Unconference took place on
11th February at Glaziers’
Hall in London, featuring
10 short talks on attractive
investment opportunities for
pension funds.
We believe it is important to
share our ideas - check out
the videos or download the
report to access our latest
thinking.
Asset
Class
ANNUAL REDIN
GTON
MAGAZINE 2015
With a greater
variety of
assets and
being consideredapproaches
by pension
funds, the label
“Alternatives”
is becoming less
useful
CLICK HERE TO PLAY VIDEO
2
Redington
20 Investment Princ ’s
iples
revealed for the
first time
An Alternative
to Alternat
ives
+
INTERROGATION
What’s really
going
DGF’s and multi-c on inside
lass credit?
REVISIT
Direct Lendin
g, Risk
CRE Debt & Volatili Parity, CTA’s,
ty Control
+
RETHINKING
How our investm EQUITIES
influence our equity ent principles
allocation view
Q&A’S
Pete DrewienkiewicBarry Kenneth,
z & Philip Rose
DID YOU KNOW? People are living longer but the average age of withdrawal from the labour market is below the national retirement age
L E BR AT I N G
S
O
F
WO
GE
THE
R
YEAR
Contacts
CE
RKING
TO
FOR MORE INFORMATION,
PLEASE GET IN TOUCH:
General Enquiries &
Greenwich Associates’ survey:
Alice Cheung
alice.cheung@redington.co.uk
020 3326 7103
The Age of Responsibility:
Patrick O’Sullivan
AoR@redington.co.uk
020 3326 7104
Portfolio Blender:
Dan Mikulskis
dan.mikulskis@redington.co.uk
020 3326 7129
RedSTART:
Freddie Ewer, Jonathan Letham
redstart@redington.co.uk
020 7250 3331
Latest thinking:
Gurjit Dehl
gurjit.dehl@redington.co.uk
020 3326 7102
Upcoming events:
Elena Del Pino
elena.delpino@redington.co.uk
020 7250 3331
Latest Figures
G H G CASE ST U DY
Celebrating The Success of Smarter
Solutions for Smaller Schemes
It’s impossible for a smaller scheme with limited
governance resources and no investment committee to gain
access to timely decision-making without trustees handing
over the keys, right? We don’t think so. Trustees of the
General Healthcare Group Plan (GHG) have utilised some
of the tools generally only available to larger schemes and,
as a result, have established a much stronger position to
reach self-sufficiency in the years ahead.
These improvements in governance were possible through
the effective co-ordination of all stakeholders and a clear,
focussed and disciplined approach to risk management.
By working together, the trustees, sponsor, scheme actuary,
investment consultant and asset manager were able to
deliver a much improved governance framework and a
clearly defined investment strategy. The trustees didn’t
have to delegate responsibility and remained in control of
overall strategy, whilst the independence of both the
Assets under consulting
(GBP billions)
374
64
Number of clients
3
investment consultant (Redington) and the asset manager
(Schroders) was maintained throughout.
Through the use of a Pension Risk Management Framework
(PRMF) and a dynamic risk management framework, GHG
has progressed along its flight plan, steadily reducing its
funding level volatility in an opportunistic and affordable
way. Over this time period, it has also immunized the
funding level against movements in real rates by increasing
the hedging ratio to be within 5% of the funding level.
The chart below shows GHG’s funding level performance
with and without the dynamic risk management strategy.
GHG have proved that it is possible to enhance both
scheme governance and investment strategy without
having to “hand over the keys”. Congratulations to all
the stakeholders who have made this outperformance
happen, with special thanks to the trustees of GHG and
Rita Powell, independent Chair of Trustees and founder
of Inside Pensions.
DID YOU KNOW? The savings ratio has fallen from 12% in the late 70s to 6% in 2010
HELPING PRIVATE INVESTORS TO PROTECT AND GROW THEIR CAPITAL
n today’s uncertain
market environment,
the return of capital
cannot be guaranteed.
An effective MultiAsset strategy is a key component
of a diversified, lower-risk portfolio.
Redington has been working with
St. James’s Place to redesign their
£1.09bn Multi Asset fund.
I
The fund aims to provide investors with
the scope for long-term returns and
protection from extreme market events.
The new strategy blends three
independent but complementary
investment managers, offering a
diversified approach to access different
sources of return but with a focus on
protecting capital in difficult market
conditions. The greater focus on capital
protection (via volatility controlled
equities with put option) also means
relatively lower fees for the fund.
I NVE S TI G ATING
TH E F UT URE O F
RE TI RE M E NT
SAVI NG
RedSTART
has a dream….
e are living through a paradigm shift
in financial responsibility, as it moves
from governments and corporations
onto the shoulders of individuals. Young
people today have, and will continue to
have, significantly more financial responsibility than
the generations that preceded them. However, studies
show that financial literacy levels in the UK are very
low and indeed declining.
RedSTART’s dream is to plant the seed for the future
financial well-being of young people everywhere.
Through interactive workshops and online engagement,
the goal is to provide free financial education to 1
million young people by 2025 - teaching them to
budget, save, invest and give back.
W
GET INVOLVED! IF YOU KNOW ANY SCHOOLS THAT
MIGHT BE INTERESTED IN PARTICIPATING, BELONG
TO A FIRM THAT WOULD LIKE MORE INFORMATION ON
PARTNERING, OR IF YOU WOULD LIKE TO VOLUNTEER TO
DELIVER A REDSTART SESSION, PLEASE GET IN TOUCH BY
EMAILING REDSTARTORGANISERS@REDINGTON.CO.UK.
“The best time to save for a pension is 30 years ago.
The second best is now.”
We all know that pension provision is a global problem that
threatens the stability of governments. Why?
People are living longer and investment performance over
the last decade has been poor. Pension funds just don’t have
enough money to meet their liabilities. In the UK alone there
are over 1 million pensioners living in poverty. In the future this
will be much worse as over 1/3 of workers aged 40 – 60 do not
have an adequate pension. This is further compounded by the
fact that the average person on the street has never had any
financial education. They feel clueless about what to do and how.
The genesis of The Age of Responsibility was a conversation with
Lord Hutton and pension industry experts. We hammered out a
clear roadmap to take us from where we are now to where we
need to be to have a comfortable income in retirement.
We hope this report will inspire you. Maybe you hold the key to
solving this pensions crisis. Maybe you hold the key to improving
people’s quality of life in retirement. Maybe you hold the key to
reducing the financial burden on the next generation.
You can download your copy from the AoR website:
http://aor.redington.co.uk.
We look forward to speaking with you and your colleagues about
the key findings and welcome your feedback.
WHAT DRIVES
OU R BEHAVIOU R?
e believe it is important for
companies to articulate
their values, to remain
accountable to them,
to drive them through
recruitment and to ensure they are
embedded throughout the organisation.
We are working hard at Redington to ensure
the following values are instilled in our
culture and the way we conduct business:
W
We do what is right.
We don’t compromise on the
integrity or quality of our work.
For example, we always keep the end
goal in mind and we bring new facts
to light even if it is difficult.
We share our ideas and opinions
and welcome the contributions
of others.
We do not stop learning,
understanding and improving.
For example, we give and receive
honest feedback and provide
opportunities for debate.
“Tell me and I forget. Teach me and I remember. Involve me and
I learn.” Benjamin Franklin
We take pride in the clarity
of our communications.
We use transparent processes.
For example, we clarify context,
review work for simplicity and do
not hide behind complexity.
4
DID YOU KNOW? 13% of 18-24yr olds face serious unsecured debt problems (greater than the national average of 11%)
CLICK HERE TO PLAY VIDEO
5
DID YOU KNOW? 89% of the UK population are not prioritising saving towards their retirement
P ORTFOL IO BL ENDE R
LDI & Overlay Strategies
Liquid Market Strategies
GET IN
THE M IX
Liquid & Semi-Liquid
Credit Strategies
Illiquid Market Strategies
WE DELVE DEEPER IN TO
OU R NEW BLENDER TO O L
Illiquid Credit Strategies
quickly. There’s now no need to wait days for the in-depth ALM
analysis to be re-run: you can see the impact in an instant.
ur clients are always looking to answer the following
questions: How can I reduce risk and increase return?
Is the scheme on track to meet its objectives? Which
strategies will add diversification? If I invested in [X]
would it help the portfolio? What sort of losses am I risking with the
current asset/liability portfolio? How does my interest rate hedging
risk interact with my assets?
O
Building the tool was a real team effort among the different areas
of the business. The development team built the initial engine that
allowed “blending” of different asset simulations into a portfolio,
and a huge library of functions to carry out the analysis. The ALM
team refined the output with input from the consulting team so we
were producing the most helpful output for clients to make decisions.
We worked together to understand the risk factors in the wide range
of strategies and instruments we now employ (from Real Estate Debt
to Multi-Class Credit or Gilt Repo) and incorporated the risk factors
into the model.
ARTICLE CONTINUES OVERLEAF
To help answer these, we have built a tool that delivers the depth
and precision of Asset-Liability Modelling (ALM) analysis that we are
known for, but also incorporates the breadth of strategies that are now
available to clients. It also builds in the latest thinking from manager
research and is quick to run so multiple strategies can be tested
6
DID YOU KNOW? 29% – equivalent to 14.6 million people – are currently failing to save any money at all according to nationally representative research
B LEN D E R O F FE R S M ORE
B R EA DT H A N D D EP T H T HA N
AN Y OT H E R TO OL.
Latest Thinking
Breadth: it covers more than 40 different asset classes and strategies,
all with distinct modelling approaches.
Depth: in each strategy we identify a number of risk and return
drivers, look at the exposures that our preferred managers will take
and ask questions like – how much equity exposure do they have on
average, how exposed are they to investment grade vs high yield credit,
how much of their risk is relative-value positions vs outright market
exposure? We also capture the risk level that the manager is looking
to target.
Asset Class 2015
In LDI we believe that the only way to properly capture these risks is
to build up the portfolio on a security level basis, modelling each swap
and gilt individually, including any synthetic bond exposures through
Gilt Repo or TRS.
The rise and rise of the bond boutiques
RECENT PUBLICATIONS:
Age of Responsibility
MOST READ ON REDBLOG
Will interest rates rise and do they mean-revert?
Asset Class-ification: What happens when something
comes along that you can’t categorise?
Our analysis is always focused on helping our clients make better
decisions. Blender enables clients to swiftly identify their major risks
and the levers they can pull to really change the risk/return balance.
When we are working with more established clients, Blender allows us
to run a huge variety of possible asset allocation changes quickly and
efficiently. Given the number of moving parts in most pension fund
portfolios, this is essential in order to make sure clients are making
the right decisions to meet their objectives.
MOST SHARED FROM REDBLOG
The importance of communication in managing pension
fund risks
Why a rate rise does not guarantee lower liabilities
Guide to the 3 key liability risks affecting your scheme today
FOR MORE INFORMATION ABOUT BLENDER AND ITS APPLICATIONS,
PLEASE CONTACT DAN.MIKULSKIS@REDINGTON.CO.UK.
RECENT PRESS COVERAGE:
Telegraph – Save 15% of your salary or public services will
be cut, young told
KEY FEATURES OF OUR PROCESS
Professional Pensions – Is 15% the right level for DC
contributions?
Empirically based
(data based)
Stochastic risk based
Margin of safety in
expected returns
(leads to better outcomes)
Individual market
stresses outcomes
Focus on correlations
and risk factors
Scenario testing
Detailed validation and
reconciliation of data
Focus on Beta
exposures first
Breadth of coverage
(over 40 asset classes
and strategies modelled)
Add key Alpha tilts
and strategy risks
Morningstar – 7 Ways to Boost Your Pension Pot
7
DID YOU KNOW? If you have £100,000 pot at retirement you will use it up within 17 years if you draw £8,000 income (Cazelet Consulting)
DOES ‘FREEDOM
DAY’ GUARANTEE A
BRIGHTER FUTURE?
Wi t h a heavy emp ha sis bein g pla ced on th e
n eed for saving in the la test Budget, the t i me
h a s come to ob ser ve how the UK will rea c t
to t h ei r newly g ranted freedoms. L ord Hut ton
s h ar es h is th o ug h ts on wha t the cha n ges w i l l
m ean a nd why we still have a lon g way to go.
8
ARTICLE CONTINUES OVERLEAF
DID YOU KNOW? A 25 year old saving an extra £33/month compounds to an extra £320 monthly income in retirement.
" T h e f undamental
probl em p o licy m aker s
n eed to addr ess is the
s i mp l e fact th at we a re
n ot s aving enoug h for
our ret i r eme nt."
The announcement that from next year, people who have purchased
an annuity will be free to sell the income stream from their annuity is
a policy very much from the same stable as last year’s announcement
on annuitisation. There are however a different set of considerations
to bear in mind here. First, there is little consensus over whether this is
the right long term policy. There are real risks that people will exercise
these new freedoms and find that their money runs out
sooner than they think. This is precisely what happened in Australia.
The fundamental problem policy makers need to address is the simple
fact that we are not saving enough for our retirement. This is the issue
that the next Parliament must set itself to address.
re-election Budgets are usually stuffed full of populist
gimmicks and have often more to do with politics rather
than economics or sound finance. Budget 2015 was in this
sense rather an outlier. With the benefit of hindsight we
can probably see last year’s Budget as the much more political one –
especially the landmark announcement about providing savers in DC
schemes with new freedoms and choices over what to do with their
pension pots. In this context, the announcements in this year’s Budget
on saving have continued a theme rather than set a new direction –
more consolidation rather than revolution.
P
Nonetheless, there were still some meaty morsels both for those
starting out on their savings journey as well as those who have reached
the later stages of it. I want to begin on a positive note. First of all,
I like the Chancellor’s emphasis on saving. We have not had enough of
this in recent years and we will need more of it in future if we are to rise
to the challenge of demographic change and the extra years we are all
likely to enjoy. So his announcements on new flexible ISA’s which allow
savers to continue to enjoy tax exempt saving even if they withdraw
some of their ISA pot (providing they re-pay in the same tax year) and
the new help to buy ISA look like sensible measures. Both measures
will help to encourage saving – particularly the later – by providing a
strong reason to start saving. This should be the benchmark by which
we judge any new policy. So the Chancellor should be congratulated for
these new initiatives.
Second, there will be practical difficulties in implementing this new policy
and it is very likely that expectations will not be realised in quite the way
the rhetoric surrounding this announcement has suggested. It is right
that this time there will be full consultation with the industry on how this
policy might best be implemented. This will hopefully avoid some of the
problems we are experiencing as we approach April 6 – Freedom Day as
some have called it. But disentangling annuities will require advice and
not just guidance. There is a lot of detailed work to do.
Third, I hope it is not too late start to place a little more emphasis on
the importance of securing a reliable income in retirement. Annuities
will play a central role in helping pensioners manage their income
needs. Let's not throw the baby out with the bathwater.
9
DID YOU KNOW? Twice as many (23%) are prioritising a holiday than are looking to save towards their retirement (11%)
DAVI D
BE N N ET T
David has a distinguished career in finance and has just celebrated his fifth year at Redington.
Here are some highlights from his work life and beyond.
Which achievement (professional or personal) are you
most proud of?
Becoming Head of Investment Consulting at Redington
and helping the firm to win 5 consecutive Investment
Consultant of the Year awards, which is ultimately a
reflection of our clients’ successes.
What has been the biggest disappointment, and what did
you learn?
During my 36 years in the City, I’ve seen that life is full
of disappointments. However, you cannot change the
past but you can change the future so the key is to look
forwards not backwards.
As a child, what did you want to be when you grew up?
I’m too old to remember that! My 6th form careers project
identified the actuarial profession which was an obvious
career choice for a mathematician.
Who do or did you most look up to?
At school it was Jonah Barrington. Being a county level
squash player myself, Jonah’s amazing feat of winning
six British Open titles between 1967 and 1973 was
inspiring. In my professional career, Gavyn Davies is
somebody I have had the pleasure to work with and
have always admired.
If you could visit yourself 20 years ago, what advice would
you share?
Seize the right opportunities but also be prepared to let
other opportunities go. 20 years ago I failed to capitalise
on an amazing career move which, at the time, seemed
out of my control while others I am glad to have passed up.
Nature or Nurture: which has the biggest influence on
successful outcomes?
There are some innate capabilities which cannot be
nurtured beyond a certain level. You need to make the
most of nurture to find the best fit between characteristics
and capabilities, for example, it’s no good Mo Farah
competing in the shot put!
What is the best piece of advice you have ever received?
A client once said to me: “Don’t look
back, look forward. Look down, not
up.” Those words really struck a chord.
How do you spend your time away from the office?
As much as I can with my family. I also enjoy keeping fit
and am a very keen cyclist and skier. The arts are another
thing I have always enjoyed, from Glyndebourne
to Glastonbury.
What is your favourite book or quote?
Nineteen Eighty-Four by George Orwell.
What has been your favourite highlight from the last
5 years?
Moving from our Mallow Street office to Austin Friars
House and, generally, seeing the continued growth of
the firm. I really feel we have built a solid foundation for
the future.
10
(Below) Squash player, Jonah
Barrington who won six British Open
titles between 1967 and 1973.
The cover of George Orwell’s 1949
classic, Nineteen Eighty-Four.
Do you have both IQ & EQ?
Are you ambitious & altruistic?
Are you motivated by profit & purpose?
If you like solving problems and want to
work in a creative team environment that
encourages innovation … look no further.
Redington is recruiting at all levels within
our Investment Consulting, Asset & Liability
Modelling (ALM) and Manager Research teams.
Make a difference. Change the industry.
Build something that counts.
Send your CV to – recruitment@redington.co.uk
(let us know which area you’re interested in)
REDINGTON
Austin Friars House,
2 – 6 Austin Friars,
London, EC2N 2HD
www.redington.co.uk
TAKING YOU BEHIND THE SCENES