Stability from volatility: future proofing an investment strategy

With many DB pension schemes finding themselves in strong funding positions following the events of the last few years, it’s easy to forget that trustees still face a myriad of other challenges that, if left unresolved, could be detrimental to their scheme’s long-term stability.

Investment strategies are a great example, as although a strategy may have delivered on the bottom-line objective of realising the scheme’s funding requirements, other issues related to risk, liabilities and portfolio management can be present.

A proactive approach

We were approached by Lincolnshire Co-operative Pension Scheme, who had identified a few potential issues within their investment strategy that they wanted to proactively address in order to consolidate their position. Though their strong funding position made none of these challenges pressing concerns, they understood that inaction could lead to future problems. 

To ensure these concerns were addressed comprehensively, our investment experts worked on a multi-layered strategy. Our solutions looked to tackle not just the immediate challenges head-on, but also to future-proof the scheme’s long-term financial health. 

Here’s how we helped:

Reducing risk

Although well-funded, the scheme's exposure to volatile markets introduced considerable risk, resulting in unpredictable fluctuations in the funding level. 

With the goal of achieving greater stability, our experts advised the trustees to de-risk their investment portfolio by selling all high-risk assets. This process would secure the gains that had been accumulated during favourable market conditions, while safeguarding against future downturns, providing the trustees with much-needed peace of mind. 

Lowering liabilities

As well as exposure to volatile markets, another vulnerability the scheme faced was the existing investment portfolio’s mismatch with the scheme’s liability profile. This opened the scheme up to potential threats brought on by significant changes in inflation and interest rates. 

Thankfully, the sale of the high-risk assets left funds available to enhance the liability hedging strategy. Collaborating closely with the Scheme Actuary, we fine-tuned the portfolio to better match the scheme’s liabilities, minimising inflation and interest rate risks. 

The end result was a portfolio better positioned to respond to market changes, with the added benefit of a reduction of operational complexity, which played into our solution for the third challenge. 

Curbing costs

Finally, we found that the fees related to portfolio management were higher than they needed to be, eating into potential returns and causing additional expense to the scheme. 

To readdress this, our investment experts leveraged their industry relationships, negotiating favourable fee arrangements that didn’t have the same impact on the scheme’s bottom line, saving the scheme and the Society money as a result. Once implemented, the changes resulted in savings of nearly £100,000 per year. 

How we can help

Through our tailored, expert-led solutions, Lincolnshire Co-operative Pension Scheme were able to both address their immediate concerns and greatly improve their long-term financial security. By reducing risk, cutting costs, and streamlining the investment strategy, our investment experts have positioned the trustees to safeguard the future of their members' benefits with confidence.

Is your scheme facing similar challenges? Our team is equipped with the expertise and industry knowledge to help you overcome them. Our commitment to excellence and our proactive approach ensures that we deliver results that matter.

Let us help you secure a better future for your members - email Chris Pritchard to get started.