1. Private & Confidential Credit Suisse Pensions Conference April 2014
The Sheldon Manifesto
Dawid Konotey-Ahulu
Co-Founder and Co-CEO
Redington
1

2. Private & Confidential Credit Suisse Pensions Conference April 2014 2
This is Sheldon

3. Private & Confidential Credit Suisse Pensions Conference April 2014 2
Sheldon is a very cool guy. He’s a helicopter pilot.

4. Private & Confidential Credit Suisse Pensions Conference April 2014 2
Flying a helicopter is very hard. So many levers…
The Cyclic tilts
the aircraft
omni-
directionally

5. Private & Confidential Credit Suisse Pensions Conference April 2014 2
The Pedals.
For changing
direction

6. Private & Confidential Credit Suisse Pensions Conference April 2014 2
The Collective. For
controlling take-
off and landing
The Throttle.
More power /
less power

7. Private & Confidential Credit Suisse Pensions Conference April 2014 2
It’s a delicate, difficult balance

8. Private & Confidential Credit Suisse Pensions Conference April 2014 2
Verb: To run a pension scheme:
Defn: A process akin to flying a helicopter

9. Private & Confidential Credit Suisse Pensions Conference April 2014
The Funding Position
GBPMillions
Liabilities Assets
700
944
Discount rate: Risk-
free Rate +50bps
3
74%
244
0
50
100
150
200
250
300
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
GBPMillions
%
Deficit Funding Level
The Pension Scheme

10. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
The Pension Scheme
The Flight Plan
Full funding on a Risk-free
+ 50bps basis in 2022
Required Rate of Return
2.34%
ExcessovertheRisk-
freeRate
4

11. Private & Confidential Credit Suisse Pensions Conference April 2014
The Pension Scheme
The Asset Allocation
Expected Return: Risk-free +1.72%
Equities
Corporate Bonds
Gilts
30%
50%
20%
5

12. Private & Confidential Credit Suisse Pensions Conference April 2014
The Pension Scheme’s Risk
5

13. Private & Confidential Credit Suisse Pensions Conference April 2014
Using the Levers …
13

14. Private & Confidential Credit Suisse Pensions Conference April 2014
It’s a balance …
14

15. Private & Confidential Credit Suisse Pensions Conference April 2014
Lever 1. Changing the Fuel Mixture
Equities
Corporate Bonds
Gilts
Diversifed Growth Funds
Hedge Funds
30%
50%
20%
13%
33%
15%
15%
25%
15

16. Private & Confidential Credit Suisse Pensions Conference April 2014
2.34% 2.34%
Expected Return Required Return
1.72%
2.34%
Expected Return Required Return
Lever 1. New Fuel, More PowerAnnualReturnover
theRisk-freeRate
AnnualReturnover
theRisk-freeRate
16

17. Private & Confidential Credit Suisse Pensions Conference April 2014
2
4
4
[
V
A…
But Higher Returns mean More Risk
6.4% 0.6%
3.5%
20.4%
9.6% 16.9%
23.6%
0%
25%
50%
VaRas%ofliabilities
GBPMillions
Current Deficit
1-in-20 potential
increase in Deficit over
the next year: [23.6% ×
£944m = £212m]
17

18. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
1250
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
If the Risk materialises
18

19. Private & Confidential Credit Suisse Pensions Conference April 2014
2.34%
Projected Required
Rate of Return
Potential Risk
Materialises
194 194
220
Projected Deficit Potential Risk
Materialises
The Required Rate of Return shoots Up
GBPMillions
Annualexcess
overtheRisk-free
Rate
5.98%
19

20. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
20
Lever 2. More Sponsor Contributions…
Annualexcess
overtheRisk-free
Rate
Required Rate of Return
2.34%
20
GBPMillions
Annual Sponsor
Contributions

21. Private & Confidential Credit Suisse Pensions Conference April 2014
1.72%
Required Rate of Return
GBPMillions
Annualexcess
overtheRisk-free
Rate
25
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
Annual Sponsor
Contributions
21
The Required Rate of Return falls…

22. Private & Confidential Credit Suisse Pensions Conference April 2014
20
25
30
GBPMillions
But the Sponsor is Constrained
Annual deficit recovery
contributions
EBITDA
[Contribution limit]
46
20
25
30
GBPMillions
22
Qn: Can we have another
£5m a year in additional
contributions please?
A: No

23. Private & Confidential Credit Suisse Pensions Conference April 2014
2.34%
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
Lever 3. Extend the Time to full funding
2022 2030
1.57%
23
AnnualReturnoverthe
Risk-freeRate
Require RF +1.57%
More time

24. Private & Confidential Credit Suisse Pensions Conference April 2014
0.0%
2.0%
4.0%
6.0%
8.0%
2018 2023 2028 2033 2038 2043
AnnualExcessReturnovertheRisk-
freeRate
Target Year for Full Funding
More Time: It is a Decreasing Benefit
Required Rate of Return
24

25. Private & Confidential Credit Suisse Pensions Conference April 2014
Do not rely heavily on Lever 3
25

26. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
Risk-free+50bps
Risk-free +100bps
26
Lever 4. Increase the “discount spread”

27. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
1250
2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041
But Now Run Harder for Longer
Assets earning risk-
free rate +1.0%
GBPMillions
Assets earning risk-
free rate +0.5%
27

28. Private & Confidential Credit Suisse Pensions Conference April 2014
Bad Weather…
28

29. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
1250
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
Lever 5. The Hedging Lever
Hedged
2.27%2.34%
4.21%
Annualexcessover
theRisk-freeRate
RequiredRateofReturn
overRisk-freerate
Original asset path
Inflation rises by 1%
29
GBPMillions

30. Private & Confidential Credit Suisse Pensions Conference April 2014
…may result in insufficient Liquid Assets (Collateral)…
Equities
Corporate Bonds
Gilts
250
210
Liquidity
Required
Liquidity
Available
30%
50%
20%
30

31. Private & Confidential Credit Suisse Pensions Conference April 2014
5. But, increasing Liquid Assets…
Equities
Corporate Bonds
Gilts
250
Liquidity
Required
Liquidity
Available
298
43%
38%
20%
31
Lower Expected Return: Risk-free +1.33%
More Gilts!

32. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
1250
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
5. …means lower Returns: and a missing £70m 
Missing
£70m
32
GBPMillions

33. Private & Confidential Credit Suisse Pensions Conference April 2014
The Sheldon Manifesto
33

34. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
Use ALL the Levers
A Bit More Time…
A bit more Contribution…
Lever 1 Lever 2
20
2.5
GBPMillions
34
Additional Sponsor
Contributions

35. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
Maintain the spread over the discount rate
Discount rate
Lever 3
Maintain RF +0.5%
35

36. Private & Confidential Credit Suisse Pensions Conference April 2014
The Required Rate of Return falls
1.89%
AnnualReturnRequired
overtheRisk-freeRate
AnnualReturnRequired
overtheRisk-freeRate
2.34%
1.89%
36

37. Private & Confidential Credit Suisse Pensions Conference April 2014
Increase Expected Returns
Equities
Corporate Bonds
Gilts
Diversifed Growth Funds
Hedge Funds
Lever 4
30%
50%
20%
30%
40%
10%
5%
15%
37

38. Private & Confidential Credit Suisse Pensions Conference April 2014
1.89%
AnnualReturnRequiredovertheRisk-freeRate
1.72%AnnualReturnoverthe
Risk-freeRate
The Expected Rate of Return rises…
Lever 4
1.72%
1.89%
38

39. Private & Confidential Credit Suisse Pensions Conference April 2014
Expected Return UP / Required Return DOWN
1.72%
AnnualReturnoverthe
Risk-freeRate
1.72%
39
AnnualReturnRequired
overtheRisk-freeRate
2.34%
-
1.89%
-
1.89%
AND

40. Private & Confidential Credit Suisse Pensions Conference April 2014
Do Some Hedging
Lever 5
74% 74%
Interest rate
hedge ratio
Inflation hedge
ratio
74% 74%
199 210
Liquidity
Required
Liquidity
Available
199
40

41. Private & Confidential Credit Suisse Pensions Conference April 2014
199 210
Liquidity
Required
Liquidity
Available
Stay within the Pension Scheme’s Liquidity Constraints
Equities
Corporate Bonds
Gilts
Diversifed Growth Funds
Hedge Funds
30%
40%
10%
5%
15%
Lever 5
199 210
41

42. Private & Confidential Credit Suisse Pensions Conference April 2014
With an appropriate Risk Budget
Lever 5
7.5% 0.3%
3.0%
5.0%
4.4%
7.0%
13.2%
0.0%
25.0%
50.0%
VaRas%ofliabilities
42

43. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
Now heading to Full Funding and Beyond!
Risk-free +1.89% Risk-free +0.55%
43
Switching to a
safer portfolio
thereafter

44. Private & Confidential Credit Suisse Pensions Conference April 2014
500
750
1000
2013 2015 2017 2019 2021 2023 2025 2027 2029
GBPMillions
Reached full funding? Time to switch to Safe Mode.
50
%
00
50
%
0
Corporate Bonds
Gilts
Expected Return:
Risk-free Rate +0.55%
Risk-free +1.89% Risk-free +0.55%
44

45. Private & Confidential Credit Suisse Pensions Conference April 2014 45
Lima Oscar Lima!