1. Redington
13-15 Mallow Street
London EC1Y 8RD
T. 020 7250 3416
www.redington.co.uk
Putting It All Together
Robert Gardner
30 August 2012
1

2. The Pensions Risk Management Framework (PRMF)
Objective Performance Indicators Actual Performance
Funding Strategy
To reach full funding by
2020
Funding ratio on IAS19 basis 85%
Funding ratio on Gilts Flat basis 70%
Expected returns in
excess of required
returns
Expected returns from current
investment strategy
Gilts + 300bps
Risk target
1-year 1-in-20 minimum
worst-case loss should
not exceed 15% of
liabilities
1-year 95% Value-at-Risk >[15]%
Aspirational target
To be fully inflation and
interest rate hedged
Nominal hedge ratio <[80]%
Inflation hedge ratio <[80]%
Scheme constraint
Liquidity & collateral
requirements
Liquidity: cash held sufficient to pay two
months of benefits
£50m
Collateral: available eligible collateral
sufficient to meet potential collateral
calls on derivative positions
>£500m
Source: Redington.

3. The Flight Plan
Source: Redington.
2012 2013 2014 2015 2016 2017 2018 2019 2020
GBPMillions
―Actual Liabilities
∙∙∙Assets Path
--- Liabilities Path
―Actual Assets

4. Credit Spread and Gilt Yield Evolution
-100
0
100
200
300
400
500
600
bps
20-Year Gilt Real Yield Sterling IG 15+ Corporate Spread IG Spread + Real Yield
Source: Redington; Bloomberg, Bank of America Merrill Lynch.

5. The Fixed Income Universe
Numbers refer to the approximate size of
each investment universe ($trn).
Source: Redington; Barclays (IG, ABS); iBoxx (Subfins); Babson Capital (High Yield, Lev Loans, CLOs); Bluebay Asset Management, Stone Harbor Investment Partners (EM).

6. • Credit Spread VaR is calculated using monthly data under a lognormal assumption with 95%
confidence.
• Leveraged Loans Index is the Credit Suisse Leveraged Loans Index.
• High Yield Index is the Merrill Lynch Global High Yield Index.
• Investment Grade index is the Merrill Lynch Sterling Corp & Collateralised All Stocks ex Sub
Index.
• Emerging Market Debt index is the Merrill Lynch Emerging Markets Plus Index.
• Sub-Financials index is a custom Merrill Lynch Index including Tier 1, Upper Tier 2 and Lower
Tier 2 instruments.
• ABS index is Merrill Lynch Sterling ABS/MBS Index.
The Case for Unconstrained Fixed Income: 31/12/2006

7. The Case for Unconstrained Fixed Income: 2006-2012

8. The Case for Unconstrained Fixed Income: 31/07/2012

9. Implementation
Source: Redington; Barclays (IG, ABS); iBoxx (Subfins); Babson Capital (High Yield, Lev Loans, CLOs); Bluebay Asset Management, Stone Harbor Investment Partners (EM).

10. Interest Rate Cycle
Credit Spread Cycle
• Diversify from other risk exposures
• Absolute return strategies may be uncorrelated with equity or bond portfolios
• Low risk strategy but higher returns than a cash fund
• Advantage of the wide universe of funds is that a fund can be chosen to meet the specific risk
appetite of any client
• Access manager alpha
• But in a more accountable, affordable and transparent structure than investing in a hedge fund
Absolute Return Fixed Income
Source: Redington

11. Conclusion: Expanding the Toolkit
Source: Redington; Barclays (IG, ABS); iBoxx (Subfins); Babson Capital (High Yield, Lev Loans, CLOs); Bluebay Asset Management, Stone Harbor Investment Partners (EM).

12. Contacts
Disclaimer
Disclaimer For professional investors only. Not suitable for private customers.
The information herein was obtained from various sources. We do not guarantee every aspect of its accuracy. The information is for your
private information and is for discussion purposes only. A variety of market factors and assumptions may affect this analysis, and this
analysis does not reflect all possible loss scenarios. There is no certainty that the parameters and assumptions used in this analysis can be
duplicated with actual trades. Any historical exchange rates, interest rates or other reference rates or prices which appear above are not
necessarily indicative of future exchange rates, interest rates, or other reference rates or prices. Neither the information,
recommendations or opinions expressed herein constitutes an offer to buy or sell any securities, futures, options, or investment products
on your behalf. Unless otherwise stated, any pricing information in this message is indicative only, is subject to change and is not an offer
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should be treated as preliminary and subject to further due diligence .
Please note, the accurate calculation of the liability profile used as the basis for implementing any capital markets transactions is the sole
responsibility of the Trustees' actuarial advisors. Redington Ltd will estimate the liabilities if required but will not be held responsible for
any loss or damage howsoever sustained as a result of inaccuracies in that estimation. Additionally, the client recognizes that Redington
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may be made without permission. Application for permission should be made to Redington Limited at the address below. Redington
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THE DESTINATION FOR ASSET & LIABILITY MANAGEMENT
Direct Line: +44 (0) 20 7250 3416
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Redington
13-15 Mallow Street
London EC1Y 8RD
Robert Gardner
Founder & Co-CEO
robert.gardner@redington.co.uk
www.redington.co.uk
Risk Management Firm of the Year
(2011, 2012)
Pension Consultant of the
Year 2012