Different Endgames for Defined Benefit Pension Schemes
An existing long-term client that is a well-funded UK pension scheme.
To identify and present relevant options regarding their endgame.
A two-part assignment:
- First to design an investment strategy that would help the Scheme reduce risk and secure member benefits.
- Then, once the Trustees and Sponsor decided to pursue buy-out, to assess, manage and implement the process of transferring assets to the buy-out provider.
We presented various endgame options to the Trustees and advised them to consider a full buy-out given the strong funding position, membership profile and Sponsor’s readiness to move to buy-out. Once the Trustee and Sponsor agreed to a buy-out we proposed the following solution:
Simplification: Simplify the portfolio by immediately de-risking the Scheme from a 60% growth and 40% matching assets to a portfolio of high-quality investment grade bonds and liability hedging assets.
Risk Reduction: Reduce investment risk in the portfolio relative to the buyout basis by c.90% as a result of the above restructuring. Hedge 100% of interest rate and inflation risk relative to a proxy buyout basis.
Liquidity Focus: Ensure all assets in the portfolio had daily liquidity given the intention to buy-out.
The Trustee appointed the actuary’s settlement team to manage the buyout transaction starting with the initial buy-in. Goldman Sachs Asset Management worked closely with this team to:
- Advise the Trustees on the investment implications of pricing and terms from different buy-out providers
- Evaluate the price lock proposed by the buy-out provider including any portfolio changes, costs involved, and different strategies for tracking and matching the price lock
- Advise on the implementation and practicalities of transferring assets to the buy-out provider
Once the Trustees decided on the buy-out provider, we acted quickly to:
- Implement the price lock portfolio
- Monitor the price lock daily relative to the pricing provided by the buy-out provider
- On the pre-agreed transaction date, sell the price lock to align with the timing for the buy-out provider’s final valuation
- Transfer sale proceeds to the buy-out provider within two days of the transaction date.
Due to our expertise and experience in the global buy-out space, robust portfolio management systems and strong working relationship with the Trustees and the actuary, Goldman Sachs Asset Management were able to implement the price lock portfolio with a close tracking error to the buy-out provider’s valuation, a benefit to the Scheme.
This significant transaction helped ensure that the defined benefit pension liabilities of the scheme’s deferred and pensioner members were fully insured, providing enhanced security and stability for their retirement benefits. This initial buy-in for the Scheme marks a significant step towards a full buy-out, underscoring Goldman Sachs Asset Management’s commitment to delivering tailored, strategic solutions for its clients.
The cited case studies represent examples of how we have partnered with various institutional clients on a broad range of services and offerings. The experiences outlined in the case studies may not be representative of the experience of other clients. The case studies have not been selected based on portfolio performance and are not indicative of future performance or success. This is not a testimonial for Goldman Sachs Asset Management’s advisory services.
