Solutions Taking a cashflow-conscious approach
10 October 2019
Fixed Income
Cashflow Driven Investment
Invesco has been building multi-asset solutions with a focus on income generation for over 20 years. We work with clients to understand their de-risking objectives and build bespoke solutions to help them achieve their goals.
Overview
Cashflow Driven Investment (CDI) solutions focus on sourcing and delivering income with more certainty to meet liabilities as they fall due. This can be achieved by holding a mix of public and private assets which deliver a combination of stable income and long-term cashflows. We believe that schemes can de-risk to a greater extent, over a shorter period of time, by implementing a global multi-asset solution. We focus on three key types of strategy:
Cashflow-aware
Sourcing investments with a focus on high income and greater certainty of return
Cashflow-matching
Holding high quality assets to maturity to match the expected liability cashflows
Buy-out aware
Holding assets which receive favourable insurance capital treatment, either to mirror an insurance strategy or support a future insured solution
Investment process
We work with each client to understand their individual objectives.
Our focus is on delivering an optimal solution which can incorporate existing assets and decisions and provide an independent view to support the best outcome for our clients.
- Initial assessment: It is important to understand the current risk and return profile – this may uncover improvements that can be made simply by varying the existing asset mix or hedging levels. This can be illustrated by an “efficient frontier”.
- Diverse global opportunity set: We encourage clients to consider a wide and diverse opportunity set, beyond traditional fixed income, and identify assets consistent with their investment beliefs and long-term objectives. Invesco’s analytics tool, Vision, enables us to assess which assets can deliver higher returns, for the same level of risk or reduce risk without adversely impacting expected returns.
- Multi-period optimisation: We are able to assess the evolution of a pension scheme’s strategy over multiple time periods and incorporate a range of potential de-risking paths when designing a solution.
- Security selection: Superior security-level expertise is the key to building best in class hold to maturity fixed income portfolios. Material value can be lost by investing passively in areas where informational advantages are available. For example, Invesco has one of the largest senior secured loans teams in the world, giving us significant sourcing, diligence and execution advantage in private markets.
- Risk management: Robust risk management requires a holistic approach. When managing CDI solutions, we pay particular attention to the risks associated with hedging, liquidity and cash management to ensure the strategy is resilient to cope with a wide range of market conditions.
Learn more about which Invesco strategies could help meet your CDI needs.
Why Invesco
Invesco Investment Solutions: The team consists of over 70 investment professionals in 10+ global locations, with an average of 15 years’ experience across the leadership team. They are independent within Invesco and have ability to fully access Invesco’s broad range of investment capabilities to create outcome-driven, customised solutions for clients.
Global Fixed Income team: Invesco has a presence in 14 locations across the globe, giving local market knowledge that translates into thorough credit research and ultimately meaningful yield enhancement - which is vital to support clients in delivering to members over the long term. In addition to this the team are a global market leader in the incorporation of ESG into their security selection process and have developed their own proprietary fundamental and ESG rating system.
Multi-asset solutions: We seek to implement best in class multi-asset model portfolios using Invesco’s public, private and alternatives capabilities. We operate under an open architecture model and can accommodate external managers whose expertise will complement Invesco’s capabilities to deliver real diversification.
Invesco Vision: Our proprietary analytics software is able to model internally and externally managed strategies, including private markets and alternatives, to provide genuinely diversified portfolios at a security and asset class level.
Implementation: Invesco has developed a proprietary portfolio trading tool that enables us to do a real-time liquidity assessment, save significant transaction costs and execute trades in a much shorter time period.
Cashflow Driven Investment strategies
Invesco offers a range of strategies suitable for cashflow focused solutions:
Strategy specialists
The Invesco Investment Solutions global team has with a wealth of experience in CDI and LDI portfolio management, protection strategies, collateral management and multi-asset solutions including alternatives.
Our team in London consists of 9 people with individuals focused on portfolio management, research and derivative solutions. Lead members of the team include Mark Humphreys, Head of EMEA Client Solutions, and Derek Steeden, Portfolio Manager - CDI strategies.
Literature
Learn more about how Vision can help you with our whitepaper
Understand our approach to modelling private assets
An introduction to CDI: Sourcing and preserving income with greater certainty
Related insights
Investment risks
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The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Important information
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Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.
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