Reducing Risk for Trustees, Members & Sponsors
of UK Pension Schemes
Valiance
Emerging Capital & Investment Solutions
• A clean sheet of paper
• Personnel perspectives:• private equity, venture finance, asset-backed lending & financing, pension fund
investment, manager research, multi-management, actuarial
• Insight and philosophy
• The long term = a series of medium term periods
• A niche focus:
Addressing the pension scheme deficits
of small / medium companies
Introduction & Background
• Pension Scheme Deficits need….
UK Pension Scheme Deficits – The Challenge
Capital Investment Skills
+
• Committed capital
• Alignment of interest
• Genuine client focus
• Funding deficits => a catalyst for change
Our Core Beliefs
Commercial Positioning
Capital
Investment ImplementationTrustee Advice
Fund Managers
Ins. Co.s
Inv. Banks
Sponsor
Employees
Actuaries &
Consultants
Demonstrating the Value for Corporates
Source: Valiance/Aon Consulting
Increase in business value*Solution Benefit Individual Combined
Clear
Match
BoostClear the deficitMatch existing actuarial returnBeat actuarial returnIncrease overall returns
Clear the deficit Match existing actuarial returnDeficit goes and doesn’t return
Clear the deficit 10-20%
0-5%
4-6%
N/a
10-25%
14-31%* Estimates vary based on specific circumstances and allocations
• Ranking: Pari-passu with the pension scheme
• Consistent term: < 10 years
• Utilise existing available corporate assets
A Catalyst for Change
• Trustees reduce sponsor deficit credit risk
• Stimulates a broad employee benefits & contributions review
• Strong value from and rationale for changing the investments
Also
• Reduces regulatory input - due diligence and dividends
• Maximises cash flow benefit - get the tax deduction now
see also:
Property Letter of credit
Contingent assets: < IF > / < THEN >
Clear - Committed Capital & Alignment of Interest
Committed Capital & Alignment of Interest:
The Valiance Investment Universe
MatchBeta Delivery
Boost Alpha sources
2.0 - 2.5
• Hedge FoF • Private equity• Infrastructure
Property
Equities
Single Strategy Hedge Funds
CreditCorporate BondsGilts
A / BBB - rated via CDOs / CDSs
AAA / AA-rated Long Only Unconstrained
130 / 30
Mix of Alpha & Potentially
Diversifying Beta
Asset
Notes
RPI and Interest Rate Swaps
3.0 - 4.01.5 - 1.7
Lowest Cost
Enhanced returns
Lower Absolute / Real Volatility
Higher Risk & cost
Expected Long Term Real
Return (%pa)4.5 - 6.0+ 8.0+
…Other Diversifiers…
…Currency, TAA,
Commodities, Protected…
Typical Client Asset exposure Valiance focus
Risk Reducing / Passive Return Enhancing / Active
UK Pension Schemes - Use of Derviatives
3
9
20
0
5
10
15
20
25
2004 2005 2006
Year
£b
n
Match - Rationale for UK Pension Schemes
Source: Watson Wyatt (estimates)
Match - Credit-based Structured Products
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
Standard deviations
Rea
lise
d i
nve
stm
ent
loss
es
Equities - 20% vol
Equities - 15% vol
Equities - 10% vol
BBB CDO
Rationale for UK Pension Schemes
• Designed to beat RPI + 6-8%pa through carefully selected alternative investments
• Our investors have seeded these funds
• If the investments out-perform, clients are able to reduce pension contributions - increasing business value
• A clear incentive: risk-adjusted outperformance benefits clients and ourselves
• True innovation:– pooled fund structure
– focused allocations to & active oversight of numerous alternatives/absolute return sectors
– avoid disappointment (over-diversification, “bulge” capacity management, index-replication)
– single vehicle for long term “alternatives” allocations for UK pension funds
Boost – The Valiance Alpha Fund
A Diversified Absolute Return Growth Fund
Boost – The Valiance Alpha Fund
A Diversified Absolute Return Growth Fund
Rationale for UK Pension Schemes
• De-risking pension schemes without the high costs associated with full LDI/matching
• Reduce sponsor deficit credit risk
• Existing exposures plus structured products and alternatives enhance efficiency and diversification
Summary of our solutions
CAPITAL + INVESTMENT
• We work alongside existing advisers; we do not advise Trustees
• Stimulate an investment review, including consideration of “alternatives”
• ALM or similar liability assessment required, at least for swaps definition
• Ongoing role remains, including management / monitoring and allocation to assets
Impact on existing advisers
• Prospects & channels
• The Pensions Regulator
• Consultants
• 7 Engagements – c.£900m of pipeline assets
Progress to date
David Hunter
Valiance Limited
53 Chandos Place
London WC2N 4HSOffice: +44 (0) 20 7812 7355Fax: +44 (0) 20 7812 7338 www.valiance.co.uk
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