Fund managers that run liability-driven investment strategies, offering protection on pension schemes against moves in interest-rates and inflation, were dramatically vindicated in 2011, according to Cardano, which said some of its clients made 25% on their money last year.
Our Independent Financial Advisors at Enable of Bishop’s Stortford have noted that strategies offered by big fund managers including Black Rock, Legal & General and F&C match those of Cardano and offer the same kind of service, which traditionally has involved replacing a portion of a pension scheme's assets with a series of cash funds, overlaid by inflation and interest-rate swaps purchased from banks.
More modern variants of the idea can include switching out of cash-plus-swaps and into inflation-linked bonds as market conditions dictate, but the basic idea remains the same - investing in a portfolio that brings in cash returns that precisely match the pensions that have to be paid, automatically adjusted for movements in inflation and interest-rates.
Cardano said that LDI strategies have typically returned over 20% in 2011. Keith Guthrie, the firm's UK chief investment officer, said: “Some of our delegated clients have seen returns of over 25% in 2011. We have also proposed that our advisory clients hedge a significant proportion of their liability risks for some time.”
LDI strategies did so well because they worked exactly as intended, Cardano said. The yields on swaps, index-linked swaps and conventional UK Government gilts all tumbled in 2011 as safe-haven demand, coupled with the Bank of England's policy of quantitative easing, kept the price of bonds high. If you have any queries about your pension Enable are here to help.
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