Cashflow Driven Investing

CDI is changing the defined benefit pensions investment landscape.

What is cashflow driven investing (CDI)?

Cashflow driven investing is a long-term approach that seeks to help schemes increase their ability to meet their future cashflow requirements and their funding objectives.

To generate predictable cashflows, cashflow driven investing strategies select assets like high quality corporate bonds to provide stable, contractual income in line with the expected cashflow requirements of the pension fund.

Delivering on the defined benefit pensions promise

Defined benefit (DB) schemes are maturing, the amount they need to pay out is increasing and many schemes now are cashflow negative or facing the prospect of becoming so in the coming years.

This challenge, combined with ever-decreasing liquidity in credit markets and rising transaction costs means that trustees are increasingly exploring the potential benefits of adopting cashflow driven investment (CDI) approaches.

At their core, cashflow driven strategies aim to help trustees transition from accumulating funds and liability management, to meeting cashflow demands as their member promises fall due. 

What is a cashflow driven investment strategy?

The benefits of a cashflow driven investing strategy

A successful cashflow driven investing strategy is one that reliably delivers predictable cashflows with the aim of paying pension benefits. According to our research, UK pension funds and their advisors see three main benefits of adopting a cashflow driven investment strategy1  :

  • Investing to support alignment with the scheme’s ‘endgame’
  • Providing a cost-effective method of paying members’ pensions
  • Reducing exposure to short-term market events

Many schemes are already turning to cashflow driven investing solutions to help reduce the risk of becoming forced sellers of assets and to plan for their cashflow and endgame requirements. 

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At the core of our cashflow driven investing solutions is our long-term Buy and Maintain credit approach

Our Buy and Maintain credit approach is a fundamentals-based, investment grade credit solution with built-in Environmental, Social and Governance (ESG) factor analysis. It aims to maximise the security of clients’ future cashflows through:

  • Capital preservation – avoiding defaults and impairments
  • Predictability – delivery of cashflows over the long term
  • Credit returns – maximising the premium over gilts

Customised solutions to meet your needs

Our cashflow driven investing approach aims to meet pension schemes’ needs for intelligent, cost-effective ways to help secure their members’ benefits; providing a flexible, capital-efficient approach for managing pension payments and balance sheet volatility.

Recognising that each scheme is unique – size, funding level, risk appetite, covenant strength, endgame strategy – we partner with clients and their advisers to develop a solution aligned to schemes’ specific positions and aims, while retaining the flexibility to adapt to market conditions and any future changes in scheme objectives.

Contact us

Our Client Services teams cover a wide range of investment areas, and aim to respond to any questions you have.

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Risks considerations for this strategy:

  • Market risk and risk of loss of invested capital
  • Risks associated with fixed income securities, including, but not limited to, interest rate risk, credit risk and liquidity risks
  • Risks linked to global investments

Investment involves risk. The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested.

    Disclaimer

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    This promotional communication does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for professional external advice.

    The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors.

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    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.