While liability-driven investing (LDI) is heavily in use, schemes—especially those with adequate funding status—are turning to cashflow driven investment (CDI) strategies to manage cash needs.
Source: State Street Global Advisors. Respondents asked to answer "Do you expect to increase your allocations to either of the following strategies over the next three years?"
have not yet allocated to CDI or have implemented CDI in the last 2 years.
of schemes seeking to transfer assets and liabilities intend to allocate more to CDI in the next 3 years.
Weaker-Covenant Schemes More Apt to Seek Transfer
Our findings show that lower-funded, weaker-covenant schemes are more prominently seeking to transfer their assets and liabilities over the long term, though their weak funding status may make it difficult to do so.
Source: State Street Global Advisors. Respondents asked to choose one goal. For weak/neutral covenant firms, N=62. For strong covenant firms, N=38.
of all respondents say that the strength of the employee covenant is Very Weak or Somewhat Weak.
of weak-funded (<90%) firms say that the strength of the employee covenant is Very Weak or Somewhat Weak.
of weak-funded (<90%) firms say that their long-term goal is to transfer assets/liabilities.
Schemes Apprehensive Towards Illiquid Credit
Schemes, even those with longer endgame horizons, are somewhat lukewarm on the inclusion of illiquid assets in CDI strategies. Our survey moreover unveiled that illiquid asset appetite relates to funding status and current fiduciary responsibility.
Source: State Street Global Advisors. Question asked was: "We would be comfortable with the inclusion of illiquid credit assets in a CDI solution," and percentages reflect those answering "Somewhat/Strongly agree." For horizon of 10+ years, N=63; for horizon of <10 years, N=37.
of schemes are comfortable with the inclusion of illiquid assets in CDI.
of fully-funded/surplus-funded schemes either Strongly Agree or Somewhat Agree with the inclusion of illiquid assets in CDI.
of schemes outsourcing fiduciary responsibility Strongly Agree with the inclusion of illiquid assets.
Outsourcing a Response to Regulatory Burdens and Market Themes
Schemes are driven to outsource fiduciary responsibilities by a wide range of challenges in the DB space, including governance shortcomings and rising demand for environmental, social and governance (ESG) integration.
Source: State Street Global Advisors. Question asked was: "What are the main reasons why your organisation is considering – or has already undertaken – the outsourcing of fiduciary management to a third-party provider?" For weak funded schemes, N=30; For well funded schemes, N=23; For Fully funded/surplus schemes, N=20.
of schemes currently outsource fiduciary responsibility.
of Fully funded/ surplus-funded schemes say that ESG support is a key driver of outsourcing.
About the Survey
State Street conducted a survey of 100 institutional investors in the United Kingdom and Ireland in July 2021. The survey respondents included pension staff, investment professionals, and finance/treasury team members from schemes across a broad swath of industries.
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