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.
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.