Three ways to protect LGPS fund surpluses (2m:26s) 

Paul Richmond, Deputy Head of Solution Design, gives an overview of some of the solutions on offer to LGPS funds.

Key takeaways:

• Three ways LGPS funds can protect surpluses
• The scale of the risk posed by an appreciation of sterling versus the US dollar
• The importance of cost-conscious solutions in protecting surpluses

Using currency hedging to protect asset values (2m:40s)

Francesca Fornasari, Head of Currency, explains the potential for large losses on US equities held by LGPS funds caused by a rise in the value of sterling.

Key takeaways:

• Sterling has the potential to outperform the US dollar over the next few years
• How dynamic hedging can reduce currency hedging costs

Further reading:
Why currency-hedged share classes are often inefficient

How cashflow-negative LGPS funds can best meet payments (3m:24s)

Hannah Ni Riain, Senior Solution Designer, explains how cashflow-sensitive investment portfolios can be implemented.

Key takeaways:

• The three typical approaches to managing cashflows
• The potential losses from forced selling
• A model of how contractual assets can help meet cashflows

Revisiting the role of fixed income for LGPS funds (2m:53s)

April LaRusse, Head of Investment Specialists, examines attractive opportunities in fixed income.

Key takeaways:

• Current fixed income yields are in excess of typical discount rates for LGPS liabilities
• Corporate bonds look attractive on an absolute and relative basis
• Credit yields stand at 15-year highs

Managing inflation risk (2m:38s)

Joe Rattenbury, Senior Solution Designer, explains how a cost-efficient method of inflation protection works.

Key takeaways:

• Inflation overshooting by 1% pa can erode pension funding
• Inflation protection at the right price can protect surpluses
• Consider triggers for buying inflation protection

The liquidity ladder (2m:27s)

Jill Hirzel, Senior Investment Specialist, tells how higher interest rates has increased opportunities for cash investors

Key takeaways:

• Short-term money market funds can be used where same day cash access is needed
• Enhanced money market funds where same day cash access is not needed
• Liquid short-dated asset backed securities can suit time horizons of several months

An introduction to ABS (3m:22s)  

We explain how asset backed securities are structured and their attributes.

Key takeaways:

• ABS can be backed by pools of hundreds or even thousands of individual loans
• ABS finance car loans, credit card loans, mortgages and commercial loans
• ABS have a return linked to short-term cash rates

Three ways ABS can benefit local government pension schemes (3m)

We describe three potential uses for asset backed securities for local government pension schemes.

Key takeaways:

• ABS can be used for income, growth or as a liquid cash-like investment
• ABS offer higher spreads to comparable corporate bonds with the same credit risk
• Historical defaults in global ABS markets are lower than similar rated corporate bonds over the long-term

Digging deeper into secured finance (3m:41s)

We give a brief explanation of secured finance securities and their attributes.

Key takeaways:

• Secured finance consists of private and publicly traded securities
• Returns on secured finance are much higher than for similarly rated credit
• Secured finance securities are more complex to analyse than corporate bonds