Cashflow Matching Strategy – CFMS121
Cashflow matching strategy (buy-and-maintain bonds) with hedging overlay and potentially a CDS overlay
Assisted Search – CFMS121
Deadline: Thursday 6th September 2018
A UK consultant is looking for Cashflow matching strategy (buy-and-maintain bonds) with hedging overlay and potentially a CDS overlay. All vehicles being proposed must be listed in CAMRADATA Live, and returns must be up to date i.e. to 31st March 2018.
If you would like to put a vehicle, or a number of vehicles, forward for this search then you must contact me with the name of the vehicle that you would like to propose by Thursday 6th September 2018 and client meetings will be held on Wednesday 12th September 2018.
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| Deadline | All responses needed by close of play on Thursday 6th September 2018. There is a meeting with the client on Wednesday 12th September 2018. |
| Asset class | Cashflow matching strategy (buy-and-maintain bonds) with hedging overlay and potentially a CDS overlay. |
| Structure | Happy to consider either segregated or pooled solutions. If you are able to offer both pooled and segregated solutions for this size of mandate, please provide details of both. Happy to consider a hybrid approach (e.g. pooled for cashflow matching and segregated for hedging element) |
| Vehicle currency | GBP |
| Approach | Objective: To construct a portfolio of cashflows, allowing for reinvestment, that aims to broadly match the liability cashflows, maintain a 100% inflation hedged position against cashflows and an approximate 100% interest rate hedged position. The average duration of the cashflows to be matched is currently around 20 years. Liabilities on a gilts + 0.5% basis are around £100m.
Core investments: Expecting this to be a combination of predominantly investment grade sterling denominated corporate bonds; UK government bonds and hedging instruments. An allowance for BB corporate bonds would be possible. Happy to consider non-sterling bonds provided the currency risk was managed and not prohibitively expensive. Target yield: We are seeking to generate a yield of around gilts+ 1.0% – 1.5% p.a. on the total portfolio over the lifetime of the Scheme, after the deduction of asset management charges but before a prudent allowance for defaults. We are also seeking as long a duration as possible given the nature of the proposed assets and the Scheme’s objectives described. It would be ideal, but not essential, if the asset manager was willing to design and monitor the swaps underlying the strategy in conjunction with the buy-and-hold mandate. |
| Track record | Happy to consider new funds, but would prefer an organisation to demonstrate its track record |
| Potential mandate | £100m of assets (£90m of initial with £10m of extra contributions committed from the Company over next 1.5 years). |
| ADDITIONAL INFORMATION REQUIRED | The consultant is running a market review on a cashflow matching / buy-and-maintain mandate overlaid by interest rate and inflation protection. The DB pension scheme in question is now well funded, following strong investment returns and large cash contributions, and is committed to move to such a strategy during 2018.
The following documentation should be submitted in order to participate in this review: · Composite track record and full firm / product information completed in CAMRADATA Live · Strategy literature including: o Factsheets for buy and hold / maintain and inflation and interest rate matching swap strategies o Investment process for buy and hold / maintain o Investment process for implementing inflation and interest rate hedging strategies o Details of current clients invested in buy and hold / maintain and inflation and interest rate matching swap strategies in your organisation |