Columbia Threadneedle Low Dependency Solutions

Accurate and tailored low dependency solutions, designed for maximum efficiency, minimum governance burden and with full ESG integration.

Low dependency investing, whereby pension schemes de-risk to reduce dependency on their sponsor, is gaining momentum amongst defined benefit (DB) schemes looking for a simple and reliable solution for the latter stages of their funding journey.

Risk disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested. Changes in interest rates and inflation expectations could have an effect on the value of your investment.

The Pensions Regulator’s (TPR) revised DB funding code of practice suggests that schemes de-risk towards a low dependency portfolio as a scheme matures. This regulatory push has driven trustees to reassess and define their long-term objectives. In particular, shifting the emphasis away from funding ratio and towards maturity when thinking about the timing of any de-risking.

The chart below illustrates the typical journey plan for a UK defined benefit pension scheme. Initially, a high allocation to growth assets and leveraged LDI allows schemes to manage liability risk in a capital efficient way, whilst targeting growth, in order to reduce the funding deficit.

Building towards low dependency

Low dependency main diagram
Legend to the diagram

As the deficit reduces and/or the scheme matures, it will gradually reduce its growth allocation and its use of leverage and move towards the low dependency portfolio.

Low dependency portfolios typically combine credit and LDI within the same portfolio to ensure a high level of hedge accuracy, maximum efficiency and reducing the scheme’s governance burden.

Finding the right solution

At Columbia Threadneedle Investments, we understand that every scheme will have different requirements, and preferences for long dated cashflow matching or short dated credit depending on their specific circumstances. We offer both within our range of Low Dependency Solutions.

Our solutions also cover a wide range of hedging profiles, allowing us to deliver solutions that are tailored to each client’s unique liability profile.

Our innovative and straightforward approach to low dependency investing allows us to bring sophisticated solutions to schemes of all sizes.