The platform solution for CDI strategies

01 December 2019

Craig Brown Institutional Distribution Director

Author

Craig Brown
Institutional Distribution Director

Investment managers have been developing Cashflow-Driven Investment (CDI) strategies to meet DB pension scheme’s need for income paying funds. Craig Brown discusses the increasing demand to see funds on pension platforms.

Nearly three quarters of the UK’s defined benefit (DB) pension schemes are cashflow negative – and this figure is expected to rise to 90% in the next ten years1. So, it’s no wonder that trustees and their advisers want to be able to access income paying funds which can be used to meet cashflow requirements without selling assets.

Investment managers have been developing Cashflow-Driven Investment (CDI) strategies to meet this need and there is now increasing demand to see these funds on pension platforms.

CDI funds typically hold a range of corporate bonds and gilts of different duration. DB schemes investing in these strategies benefit from contractual income from the bonds. These funds typically follow a buy-and-hold strategy, giving schemes another known source of income on the maturity of the bonds.

DB schemes can hold CDI funds with different maturity dates to meet pension payments to members or blend funds to give a more bespoke solution. Income payments can be made straight into trustees’ bank accounts on a periodic basis. And of course, because no asset is sold, there is no bid/offer spread enabling trustees to receive income without incurring transaction costs.

By holding CDI funds on a pension platform, such as Mobius Life, schemes and their advisers benefit from simplified administration and a single view of all the scheme’s assets. Because investments are pooled on a platform, smaller schemes can easily access CDI strategies, which may be out of reach to them on a stand-alone basis.

Not all platforms have the flexibility to hold CDI funds, but at Mobius Life, because we are fully focused on delivering investment platform services, we are taking steps to make CDI strategies available to schemes of all sizes.

As more and more schemes become cashflow negative, they will be seeking ways to meet their income needs – with the administration handled seamlessly on platform. Mobius Life is ready to help.

  1. Mercer (2019): https://www.pensionspolicyinstitute.org.uk/media/3311/20191029-db-endgame-reportfinal.pdf
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