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Investment Insights: if Cashflow Driven Investment is the solution, what is the question?
Whilst CDI is being offered by some as a revolutionary new solution, we view CDI more as a natural step for maturing pension schemes to take as part of a de-risking journey.
Cashflow Driven Investment (CDI) is a concept that has risen in popularity over recent years with pension scheme investors. As we explore these insights, we find that a CDI solution means different things to different people and believe it is vital for any investor to first understand what someone means by such a strategy.
We examine how we see a CDI strategy operating and set out some danger signs for investors to be wary of when entering into considerations around such an approach.
Our key messages that investors should keep in mind:
- For most schemes, there is a balance to be struck between producing cashflows, generating return and managing funding level risk.
- Cashflows will need to be given more weight in the strategies of mature, well-funded schemes compared to those still needing a higher level of return; however where cashflow considerations are important, CDI can still form part of the strategy.
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