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    Investment solutions for LGPS funds

    Investment solutions for Local Government Pension Schemes

    At Insight, we have over 25 years’ experience helping pension schemes develop and implement robust strategies to match their funding objectives. We have many creative ways of helping LGPS funds. To learn more about how we can help you email lgps@insightinvestment.com.

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    We are proud to have been named Fixed Income and/or Credit Manager of the Year at the LAPF Investment Awards 2024.

     

    How can LGPS funds protect their surplus?

    In this video series, we explore the prominent risks to LGPS fund surpluses and our range of hedging and cashflow-matching solutions that can be deployed in a cost-effective manner to protect funding levels.

    Three prominent risks to LGPS fund surpluses

    Three ways to protect LGPS fund surpluses (2m:26s) 

    Paul Richmond, Deputy Head of Solution Design, gives an overview of some of the solutions on offer to LGPS funds.

    Key takeaways:

    • Three ways LGPS funds can protect surpluses
    • The scale of the risk posed by an appreciation of sterling versus the US dollar
    • The importance of cost-conscious solutions in protecting surpluses

    Using currency hedging to protect asset values (2m:40s)

    Francesca Fornasari, Head of Currency, explains the potential for large losses on US equities held by LGPS funds caused by a rise in the value of sterling.

    Key takeaways:

    • Sterling has the potential to outperform the US dollar over the next few years
    • How dynamic hedging can reduce currency hedging costs

    Further reading:
    Why currency-hedged share classes are often inefficient

    How cashflow-negative LGPS funds can best meet payments (3m:24s)

    Hannah Ni Riain, Senior Solution Designer, explains how cashflow-sensitive investment portfolios can be implemented.

    Key takeaways:

    • The three typical approaches to managing cashflows
    • The potential losses from forced selling
    • A model of how contractual assets can help meet cashflows

     

    Revisiting the role of fixed income for LGPS funds (2m:53s)

    April LaRusse, Head of Investment Specialists, examines attractive opportunities in fixed income.

    Key takeaways:

    • Current fixed income yields are in excess of typical discount rates for LGPS liabilities
    • Corporate bonds look attractive on an absolute and relative basis
    • Credit yields stand at 15-year highs

    Managing inflation risk (2m:38s)

    Joe Rattenbury, Senior Solution Designer, explains how a cost-efficient method of inflation protection works.

    Key takeaways:

    • Inflation overshooting by 1% pa can erode pension funding
    • Inflation protection at the right price can protect surpluses
    • Consider triggers for buying inflation protection

    The liquidity ladder (2m:27s)

    Jill Hirzel, Senior Investment Specialist, tells how higher interest rates has increased opportunities for cash investors

    Key takeaways:

    • Short-term money market funds can be used where same day cash access is needed
    • Enhanced money market funds where same day cash access is not needed
    • Liquid short-dated asset backed securities can suit time horizons of several months

    For investors seeking higher yield, ABS is a versatile asset class with many uses for LGPS

    In this video series, Insight's Andy Burgess, Fixed Income Investment Specialist explains how asset backed securities (ABS) work; points out the ways ABS can help LGPS funds, and explains secured finance, the highest yielding part of the ABS market.

    An introduction to ABS (3m:22s)  

    We explain how asset backed securities are structured and their attributes.

    Key takeaways:

    • ABS can be backed by pools of hundreds or even thousands of individual loans
    • ABS finance car loans, credit card loans, mortgages and commercial loans
    • ABS have a return linked to short-term cash rates

    Three ways ABS can benefit local government pension schemes (3m)

    We describe three potential uses for asset backed securities for local government pension schemes.

    Key takeaways:

    • ABS can be used for income, growth or as a liquid cash-like investment
    • ABS offer higher spreads to comparable corporate bonds with the same credit risk
    • Historical defaults in global ABS markets are lower than similar rated corporate bonds over the long-term

    Digging deeper into secured finance (3m:41s)

    We give a brief explanation of secured finance securities and their attributes.

    Key takeaways:

    • Secured finance consists of private and publicly traded securities
    • Returns on secured finance are much higher than for similarly rated credit
    • Secured finance securities are more complex to analyse than corporate bonds
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    The importance of prioritising responsible investment in fixed income

    The importance of prioritising responsible investment in fixed income

    Debt markets are larger and reach further than equity markets, offering extensive opportunities to engage with this much wider issuer base.

    Debt markets are larger and reach further than equity markets, offering extensive opportunities to engage with this much wider issuer base.

    Responsible Investment at Insight

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