1. Westminster and City 17 April 2013
Repositioning Assets for
Buyouts & Buy-ins from
Gilts to Infrastructure
Robert Gardner, Co-CEO of Redington
Westminster and City
1

2. Westminster and City 17 April 2013
Repositioning Assets for Buyouts and Buy-ins from Gilts to Infrastructure
2
The Seven Steps to Full Funding

3. Westminster and City 17 April 2013
Step 1 Description
• A strategic Pension Risk Management Framework that sets out funding objectives, risk budget
and other constraints such as liquidity and collateral requirements
• A Flight Plan that charts each plan’s path to full funding and generates required returns used
to set investment strategy
Setting Clear Goals and Objectives
3

4. Westminster and City 17 April 2013
Objective Measurement Performance Indicators Performance (31 Jan 13) RAG
Primary Funding
Objective
To reach full funding by [2026] (based
on discount rate of Gilts + 0.75%)
Expected Returns (ER) > Required
Returns (RR)
RR: Libor + 300bps
ER: Libor + 200bps
Difference: -100bps
Secondary
Funding Objective
To reach full funding on a buyout basis
by [2032] (based on a discount rate of
gilts flat)
Expected Returns (ER) > Required
Returns (RR)
RR: Libor + 250bps
ER: Libor + 200bps
Difference: -50bps
Investment
Strategy
Actual Returns should exceed
Expected Returns
Actual Returns (AR) > Expected Returns
(ER)
AR: Libor + xxxbps
ER: Libor + 200bps
Difference: xxbps
Risk Budget
The investment strategy should not risk
the deficit worsening by [20%] of
liabilities over a 1 year period
VaR95 < [20%] of liabilities VaR95: 28.0%
Hedging Strategy
Nominal/Inflation hedge ratio should be
maintained within +/- 5% of the funding
ratio.
Funding Ratio (gilts + 0.75%) 60%
Nominal Hedge Ratio (gilts + 0.75%) 20%
Inflation Hedge Ratio (gilts + 0.75%) 25%
Collateral
Maintain sufficient eligible for the
purposes of covering margin calls that
may arise from the Scheme’s current
derivative positions over a 1 year
period.
Total available eligible collateral xx mn
Remaining collateral after VaR95 event yy mn
The Pension Risk Management Framework
4
RAG Status Metric is at or above target Metric is within [10%] of target Metric is more than [10%] away

5. Westminster and City 17 April 2013
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2012
2013
2013
2014
2014
2015
2015
2016
2017
2017
2018
2018
2019
2020
2020
2021
2021
2022
2022
2023
2024
2024
2025
2025
2026
£mm
Flight Plan
liability (swapflat) asset(swapsflat)
The Flight Plan
5
100% - Swaps Flat by 2026
Required Returns Libor + 300bps
Expected Returns Libor + 200bps
Contributions & Asset Returns
Liability Basis
Time Horizon

6. Westminster and City 17 April 2013
Access to LDI Hub
6
Step 2 Description
• Interest rate and inflation risk are typically two of the largest “unrewarded risks” for a
pension scheme
• Setting up an LDI hub which gives the scheme the ability to manage inflation and interest
rate risk efficiently and effectively

7. Westminster and City 17 April 2013
Steps 3 – 6: Designing an Efficient Investment Strategy
7
Step
Liquid α & β Semi-Liquid Credit Illiquid Credit Illiquid α & β
Equities Corporate Bonds Infrastructure Debt Insurance-Linked
Multi Asset
Asset Backed
Securities
Social Housing Debt Private Equity
Commodities / CTA High Yield Direct SME Lending Infrastructure Equity
Currencies Leveraged Loans Mezzanine Finance Unlisted Property
Liquid Hedge Funds
Emerging Market
Debt
Distressed Debt
Hedge Funds with
Lock-Ups
Commercial Real
Estate Debt
Long Leases /
Ground Rents

8. Westminster and City 17 April 2013
Asset Class Universe: Results of Manager Survey
8
Distressed Debt
Multi Asset
Long Leases
Ground Rents
High Yield
Private Equity
EM Debt
SME Lending Currencies
EM Equity
Social Housing
Infrastructure Equity
Mezz Debt
Lev Loans
ILS
CTA
ABS
Developed Equity
Corporate Bonds
Infra Debt
CRE Debt
Unlisted Property
-5
-4
-3
-2
-1
0
1
2
3
4
5
-5 -4 -3 -2 -1 0 1 2 3 4 5
Predictable
Illiquid Liquid
Unpredictable

9. Westminster and City 17 April 2013
Credit as a Core Building Block for Flight Planning
9

10. Westminster and City 17 April 2013
Repositioning Assets: Steps 4, 5 and 6
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11. Westminster and City 17 April 2013
Liquid & Semi-Liquid Credit Strategies
Step 4 Description
• Credit consists of a range of sub-classes with different risk-return characteristics
• Bulk of excess returns are compensation for credit risk
Emerging Market DebtInvestment Grade
11

12. Westminster and City 17 April 2013
Liquid & Semi-Liquid Credit Strategies
12
LL
HY
EMD
IG
SF
ABS
LL
HY
EMD
IG
SF
ABS0
100
200
300
400
500
600
0 100 200 300 400 500 600
GBPCreditSpreadoverSwaps(bps)
Credit Spread VaR 95 (bps)
Leveraged Loans High Yield Investment Grade Sub Financials ABS Emerging Market Debt
Q1 2007
Q4 2012
Equity expected
return: 300bps
over swaps
Sources: Babson Capital, Redington 25

13. Westminster and City 17 April 2013
Illiquid Credit Strategies
13
Step 5 Description
• Long-dated, hold to maturity instruments that pay an illiquidity premium
• Usually for high-quality, inflation-linked cash flows
• Typically, these Flight Plan Consistent Assets (FPCAs) tend to fit well with the overall
objectives of pension schemes when assessed in the context of a scheme’s PRMF
• Careful consideration should be placed on ensuring the scheme invests in opportunities
providing the best risk-adjusted returns and offers better relative-value
Secured Leases Social HousingInfrastructure Ground Rents

14. Westminster and City 17 April 2013
Illiquid Alpha & Beta Strategies
14
fdStep 6 Description
• Assets under this category provide attractive returns but are typically more complex and
illiquid e.g. private equity and PFI equity
• Inclusion of these asset classes in the scheme’s investments will depend on the overall
objectives and governance budget of the scheme as set out in its PRMF
• Examples: Private Equity, Property, Insurance Linked Securities
Insurance-Linked Securities

15. Westminster and City 17 April 2013
Step 7 Description
• Effective monitoring is key to measuring a scheme’s progress against its objectives
• Once you have set clear goals and objectives (step 1), the value of monitoring (step 7) is that
you can make better decisions by tracking where you are against your objectives.
• A scheme that regularly monitors understands the impact of its investment decisions and can
easily assess investment opportunities via-à-vis the liabilities
Ongoing Monitoring
Track scheme’s progress towards clear goals and objectives
15

16. Westminster and City 17 April 2013
13-15 Mallow Street London EC1Y 8RD Telephone : +44 (0) 20 7250 3331 www.redington.co.uk
Contacts
Robert Gardner
Founder & Co-CEO
Direct Line: 020 7250 3416
robert.gardner@redington.co.uk
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