Pivoting To a Cashflow Driven Investment (CDI) Portfolio Strategy
A fully funded pension scheme looking to reduce risk in its portfolio.
Reduce risk in the portfolio by pivoting its investment strategy, with a longer-term focus on a buyout.
- Reduce risk to lock-in a strong funding position.
- Shift the scheme’s investment strategy to a cashflow-focused approach.
- Position the scheme for a buyout within 10 years.
We proposed a portfolio leveraging a bespoke CDI strategy with three blended investment elements: CDI, liability-driven investing (LDI) and Growth. The success of this strategy depended on the scheme’s variables, on portfolio diversification, and on portfolio allocations that are flexible and responsive to unforeseen events (including outflows).
Many schemes experienced a funding boost in 2023, extending the queue for buyout among pension schemes. They are beginning to reevaluate running on a self-sufficiency basis until there’s an opportunity for them to manage risk transfer. We advised our client to look towards CDI until they can reach their endgame – a strategy designed to generate cashflows that meet end payments in a self-sufficient manner.
As our client agreed to adopt a self-sufficient CDI approach, the metrics and key performance indicators (KPI) against which the mandate is reviewed have been broadened. In addition to our standard transparency in performance breakdown between Strategic Asset Allocation (SAA), manager alpha, and dynamism, there’s a need for cashflow-specific metrics, including credit quality and migration, expected versus realized income, and positioning relative to guidelines.
We continue to support our client and provide regular updates and relevant information on an ongoing basis. Depending on the scheme’s objectives and market conditions, the mandate has the flexibility to expand over time and opportunistically cover a greater proportion of future benefit payments.
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.
