CDI portfolio construction considerations

In a recent article, we warned that the generally underfunded and increasingly cashflow-negative UK Defined Benefit (DB) pension sector could see its funding status challenged, especially in the present late-cycle environment. We argued that a Cashflow Driven Investment (CDI) approach could be a solution, to help meet liability payouts with a high degree of certainty. Let’s now roll up our sleeves and explore how CDI could be brought into action. Should schemes solely focus on Sterling denominated assets? Should portfolios be managed actively?

UK or Global?
In an ideal world, a CDI portfolio would be void of currency risk and foreign interest rate risk. However, the relatively limited size of the UK Investment Grade (IG) corporate bond market would make it rather challenging to construct a purely domestic CDI portfolio because:

Read the complete white paper at the link beneath Related Files

Supporting documents

Click link to download and view these files