Norbert Fullerton, our Head of Institutional Client Strategy, EMEA, sets out how cash-flow driven investing (CDI) is pivotal for DB pension funds navigating their end-game strategies, helping to reduce funding level volatility, boost investment returns and produce income to meet cash-flow requirements.

Key Takeaways

  • Cash-flow driven investing (CDI) could be pivotal for DB pension funds navigating their end-game strategies (e.g. self-sufficiency or buyout). For example, it’s suitable for DB pension funds that are facing cash-flow challenges and have a medium to long-term horizon.
  • Suitable for sponsors who want to reduce their balance sheet volatility in relation to pensions, and for trustees who want to manage both their cash-flow needs and funding level volatility.
  • CDI doesn’t necessarily mean precise cash-flow matching, especially given the uncertainty of projected cash outflows.
  • CDI is not just for pension funds that need income. CDI strategies are generally good investments that help to boost returns and reduce risk on various measures.

In today’s ever changing financial market conditions, it is vital for trustees and sponsors of DB pension funds to be able to pay benefits and provide enhanced certainty of investment returns. Given the changing pensions landscape, with ever-increasing maturity, it has never been more important to re-shape portfolios and adopt CDI strategies. That will help produce the needed income – especially for pension funds that are already (or will soon become) cash-flow negative.

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