Standard Life develops liability driven approach
UK – Standard Life Investments says it has developed a set of “liability-driven” investment solutions.
"Standard Life Investments has developed several stables of liability driven investment solutions to satisfy major classes of asset liability problems,” said the asset manager’s head of risk, Julian Coutts.
He added that one of the solutions is LPI, or limited price indexation, matching investment schemes. These “can be generalised to the appropriate balance of real and nominal assets depending on time horizon and liability structure”.
Coutts put forward a three-stage process between investment managers and the trustees of defined benefit pension schemes.
“A three stage process is developed between the parties, with a strategy chosen that is consistent with the client's risk tolerance and liability profile.”
The process involves pension assets being divided into sub-funds – a move aimed at providing more control in reaching the investment return target.
And excess returns would be used to protect the fund and allow a higher risk tolerance. The equity portfolio would reflect “a pure investment judgement rather than being influenced by index composition".
Coutts also put forward a “risk sharing structure” to align client and manager interests.
"These elements combine to demonstrate long term, responsible investing,” Coutts said. “They allow a genuine partnership to develop, focused on delivering a return on assets to satisfy trustees' need to balance return and risk over a long period consistent with their obligations to the various parties to the pension scheme."
Meanwhile, Diane Knowles, director of strategic solutions at Schroders, agreed that liabilities are under scrutiny.
“It is certainly the case that both trustees and sponsors of pension schemes are paying more attention to their liabilities, which is a trend we expect to continue into 2004,” she said.