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Quantum undertakes an investment restructure for one of its clients

It’s a tricky question: what are the risks and returns in your investment portfolio at any given time? Is it delivering value for money? Working with the trustees of a defined benefit scheme, we set about finding the answers.

We were approached by the trustees of a UK Defined Benefit pension scheme who wanted to better understand the risks in their investment portfolio. They wanted to ensure that the right level of return was being targeted, that the advice they were getting fitted the scheme’s governance structure and that it was delivering value for money.

We had come across this scenario many times before – the majority of pension scheme stakeholders have similar concerns – and we set about demonstrating how our advice would benefit the scheme.

Our fact-finding process

We immediately carried out a high level review of the investment portfolio (at no cost to the client), presenting our initial thoughts to the trustees and company. Our findings suggested that:

  • The level of return targeted by the current investment portfolio was too high relative to what was needed.
  • The level of risk in the portfolio could be significantly reduced.
  • The underlying fund managers being used to implement the strategy were expensive and had inappropriate return targets.

We started by working with the trustees to ascertain their level of investment knowledge. We devised a training plan to address any knowledge gaps and make sure the trustees full understood the process we were about to implement. We focused our training and subsequent work on two areas:

  • Setting the investment strategy: including an asset liability modelling exercise that helped to identify an appropriate proportion of return-seeking assets (equities, property, diversified growth funds, hedge funds) and matching assets (bonds, gilts, index-linked gilts) that should be in the portfolio.
  • Implementing the investment strategy: including selecting fund managers from our recommended list for each asset class we identified. We used a tailored solution so that our recommended managers could be accessed quickly, efficiently and cost effectively – with daily asset feeds from fund managers.

Results

We reduced the targeted level of return by 15% and the level of risk in the portfolio by 35%. This led to a more efficient portfolio from a risk return perspective, plus it decreased the likely need for additional contributions from the company.

We cut the number of underlying managers from 33 to four but at the same time also introduced a broader range of fund management styles, using Diversified Growth Funds. As a result, fund manager fees in the newly constructed portfolio are now up to 40% cheaper than the previous portfolio.

The trustees and company have decided to further enhance their investment strategy by introducing a de-risking framework to take advantage of favourable market movements.

Want to know more about this?

Read our article: ‘Dynamic de-risking for stronger investing’.

 

Quantum Advisory
T: 029 2083 7900