Three-quarters of DB assets could be in cashflow driven strategies within 12 months, finds AXA IM research

Almost three-quarters of UK defined benefit pension schemes could be adopting a cashflow driven investment strategy within 12 months, a survey of trustees and consultants overseeing more than £1 trillion of assets has found.

The research, commissioned by AXA Investment Managers and carried out by mallowstreet, found that 52% of schemes are already adopting a cashflow strategy, with a further 21% considering doing so in the next 12 months.

The survey, which polled 48 pension funds (ranging in size from £2bn+ to under £500m) and 10 investment consultants in March 2019, comes as cashflow negativity rises up the agenda for trustees as schemes mature. It is estimated that more than 85%[1] of schemes will be cashflow negative by 2028, prompting trustees to consider investment strategies to help them ensure they have the appropriate cashflows to meet their member promises.

Sebastien Proffit, Head of Portfolio Solutions, Fixed Income at AXA IM, said:

“Cashflow negativity, in conjunction with decreasing liquidity in credit markets, rising transaction costs and regulatory changes, means schemes face an increasingly difficult challenge to ensure they can meet all of their pension liabilities efficiently. It’s therefore vital that they are putting strategies in place to have the best chance of meeting all of these payments in the future, so it is encouraging to see that the majority of schemes are thinking about the importance of cashflow driven investment (CDI).

“However, it is important to remember that cashflow matching is far more complex than simply buying credit. In order to avoid becoming a forced seller of assets, schemes need to implement robust, long-term strategies that can incorporate a wider mix of assets underpinned by quality risk analysis, including – crucially – ESG criteria.”

Endgame strategies

As part of the survey, AXA IM also questioned schemes on their broader endgame strategies. The research found that 52% of schemes were targeting self-sufficiency, 25% were aiming for buy-out, and that none of the pension schemes surveyed (0%) defined buy-in as their endgame objective[2].

Results varied slightly between different sizes of schemes, with self-sufficiency favoured by 57% of the largest schemes compared to 42% of small schemes. Within the survey, buy-out was only favoured by 10% of schemes with more than £2bn of assets.

John Stainsby, Head of Client Group UK at AXA IM, said:

“It was perhaps surprising to see that buy-in was not a prevalent choice for small or large schemes, but the research clearly shows two obvious trends. One is that larger numbers of schemes are aiming for self-sufficiency as part of their endgame planning. The other is that schemes more broadly are looking at strategies to ensure they are generating predictable cashflows so they can meet their member promises efficiently and as they fall due.

“As pension funds mature, it is imperative that they focus on and define their endgame strategies. If a scheme has a self-sufficiency objective, as our research shows large numbers do, then ensuring that the cashflows are there when expected is vital. CDI can provide schemes of all sizes with the certainty they need to deliver on their long-term objectives.”


Jamie Wynn-Williams

+44 20 7003 2680

Hélène Caillet

+33 1 44 45 88 06

[1] European Asset Allocation Study 2018
[2] The remaining 23% responded either ‘Don’t know’ (8%) or ‘Other’ (15%)

About mallowstreet

Established in 2009, mallowstreet is the community for the pensions industry. mallowstreet’s mission is to help solve the pensions and savings crisis, ensuring that everyone who has a promised pension receives it in full. mallowstreet helps community members build and strengthen relationships, access top quality education, collaborate effectively and enhance distribution. The community has over 3,000 members who control over £2 trillion of pension fund assets.

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