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“Better safe than sorry” - Downside protection for defined benefit pension schemes

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April 25, 2019

In the current volatile environment, when a big correction in markets would hardly come as a surprise, being safe rather than sorry makes a lot of sense. This explains why more and more trustees are considering how to use some of their potential investment upside to protect the downside. Here we explore some key downside protection strategies.

In the current volatile environment, when a big correction in markets would hardly come as a surprise, being safe rather than sorry makes a lot of sense. This explains why more and more trustees are considering how to use some of their potential investment upside to protect the downside.

In this paper we explore some key downside protection strategies, such as:

  • Diversifying portfolios further
  • Assets that do well in times of stress
  • Limiting equity losses
  • Having a flexible portfolio

Our preferred downside risk management strategy is implemented in such a way that the overall return under normal market conditions is largely unchanged. It does, however, sometimes mean sacrificing part of the gains to be had when markets perform really well. An increasing number of schemes have accepted this trade-off recently (typically very large schemes as well as our fiduciary clients who use some or all of the techniques above). We think that many more schemes can benefit from adopting similar protection strategies at this time.

To learn more, download the full article.

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