1. Redington
13-15 Mallow Street
London EC1Y 8RD
T. 020 7250 3331
www.redington.co.uk
Inflation- Linked Assets
Introduction
18 March 2011

2. Inflation-Linked Assets
Schedule
SCHEDULE

3. Previous Education Sessions
3
Inflation Linked Assets
Redington Education Seminars

4. Inflation Linked Assets
Creativity Exercise: Thinking Outside the Box

5. More than one solution...
Inflation Linked Assets
Creativity Exercise: Thinking Outside the Box

6. Overall
Objective
Risk
Targets
Aspirational
Targets
Scheme
Constraints
6
The pension risk management framework is a market consistent, transparent and actionable tool which is key for any trustee, sponsor or member
Objective Triggers Performance Indicators
What is the overall objective? To reach full funding on self-sufficiency basis By 2020 on a Swaps +75bps with £50m of
contributions p/yr
How will we measure the objective? Using the required return on the Scheme’s assets Required Return of assets is Swaps +160bps
What are the primary risk targets? Required rate of Return at Risk (RRaR)
Contributions at Risk (CaR)
RRaR should be no more than 300bps
CaR should be kept below £50m
What is the secondary risk target? Value at Risk (VaR) VaR should not exceed 20% of the liabilities
What are the primary aspirational targets? To increase interest rate and inflation hedge ratios Hedge ratios equal to funding level
What is the secondary aspirational target? Dynamic de-risking Based upon regular monitoring
What is the primary Scheme constraint? Liquidity Enough liquidity to pay pension payments
What is the secondary Scheme constraint? Collateral Requirements Enough eligible collateral to cover the 1yr derivative
VaR95
Regular monitoring allows a call to action that enables trustees and sponsors to anticipate and recalibrate the investment strategy
Governance and Investment Strategy
Pension Risk Management Framework (PRMF)
“‘If a man knows not what harbour he seeks, any wind is the right wind’”
Seneca

7. 7
Flight Plan – Projected Cashflows
This is the expected path of the liabilities over the next 20 years.
Risk management, governance, markets and strategic asset allocation all play a part.
Governance and Investment Strategy
Pension Risk Management Framework (PRMF)

8. 8
£10.0bn
£12.0bn
£14.0bn
£16.0bn
£18.0bn
£20.0bn
£22.0bn
£24.0bn
£26.0bn
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Example:Actual Assetand Liability Path (Actuarial Basis)
Projected Liabilities Projected Assets Actual Liabilties Actual Assets
The Flight Plan: Long-Term Objective Setting and Risk Management Framework
Inflation Linked Assets
The Flight Plan

9. 9
Growth
• Equities
• Property
• Absolute
Return/
Hedge Funds
• Private Equity
• Commodities
Traditional “Growth” and “Matching” Assets
Matching
• Nominal Gilts
• Index-Linked
Gilts
• Nominal
Swaps
• Inflation
Swaps
?
Credit
•Nominal/ index-
linked corporate
bonds
•Loans
•Structured Finance
Assets
•Other debt products
C
?
Flightplan
Consistent Assets
•Long term secured leases
•Social housing
•Commercial mortgages
•Ground rents
•Equity release mortgages
•Social and economic
infrastructure
Pension Risk Management Framework (PRMF)
“Flight Plan Consistent” Assets

10. 10
FPCAs Matching Growth Credit
High Correlation to Liabilities    /
Contractual Cashflows    
Senior Secured    
Long Duration  /  /
Excess Returns    
(Il)Liquidity Premium    /
Potential for Upside Gain    
10
Pension Risk Management Framework (PRMF)
“Flight Plan Consistent” Assets

11. Redington Publications
11
Spring Collection Highlights: LDI 2.0,
Secured Leases, Ground Rents, Equity
Release Mortgages, Social Housing,
Insurance-Linked Securities, Infrastructure
Spring Collection 2011 Collection Coming Soon: Enhanced Matching
Assets, Socially Responsible Investing and Long-Term Growth Assets
Pension Risk Management Framework (PRMF)
“Flight Plan Consistent” Assets

12. SECURED LEASES
• Take advantage of attractive yields on long-term secured property leases
• Yields may be in excess of yields on corporate bonds issued by same borrower
• Long-dated (up to 25 years) index-linked cashflows - helps hedge inflation risks
SOCIAL HOUSING
• Low-cost rental housing provided for disadvantaged people in need of housing
• Generally provided by local councils and housing associations
• Offers long-dated, inflation-linked cashflows from secured borrowers (i.e. housing
associations) with quasi-government guarantee
INFRASTRUCTURE
•Investing in public sector projects through Private Finance Initiatives (PFIs)
•PFIs enable government to fund new infrastructure projects
•Long-term, potentially inflation-linked revenue streams
12
Example Flight Plan Consistent Assets
Pension Risk Management Framework (PRMF)
“Flight Plan Consistent” Assets

13. Contacts
Feel free to share, contact, discuss...
Direct Line: +44 (0) 20 7250 3416
Telephone: +44 (0) 20 7250 3331
Redington
13-15 Mallow Street
London EC1Y 8RD
Robert Gardner
Founder & Co-CEO
robert.gardner@redington.co.uk
www.redington.co.uk
In addition...
http://twitter.com/robertjgardner
http://uk.linkedin.com/in/robertjgardner
http://www.mallowstreet.com/