Dan Tammas-Hastings - Liability-Driven Investment

1 Cover

2 Title Page Liability-Driven Investment From Analogue to Digital, Pensions to Robo-Advice DANIEL TAMMAS-HASTINGS

3 Copyright

4 Dedication

5 Preface

6 CHAPTER 1: Liability-Driven Investment and Multi-Asset Class InvestingMOVING BEYOND MODERN PORTFOLIO THEORY: INTRODUCING THE WORLD OF LIABILITY-DRIVEN INVESTMENT THE CULT OF EQUITY THE PENSION PROTECTION FUND SUMMARY

7 CHAPTER 2: Introduction to Investment Risk RISK MANAGEMENT THE IMPORTANCE OF RISK VS RETURN QUANTIFYING RISK SYSTEMATIC AND NONSYSTEMATIC RISK CREATING A RISK PROFILE SUMMARY

8 CHAPTER 3: Introductory Steps into the World of Multi-Asset Class Investment SOME HANDY DEFINITIONS THE STARTING POINT INTRODUCING MODERN PORTFOLIO THEORY MORE HANDY DEFINITIONS BUT HOW DOES THE ASSET ALLOCATION DECISION WORK? HOME COUNTRY BIAS: DEVELOPING A STRATEGY FOR MULTIPLE ASSET CLASSES QUICK ASIDE: SUMMARY

9 CHAPTER 4: Building Investment Portfolios (FUNDAMENTAL, TECHNICAL AND QUANTITATIVE TECHNIQUES) AN INTRODUCTION TO SINGLE STOCK SELECTION THE TYPES OF ANALYSIS FUNDAMENTAL ANALYSIS OF SECURITIES TECHNICAL ANALYSIS OF SECURITIES QUANTITATIVE ANALYSIS THE PASSIVE VS ACTIVE DEBATE SO, PASSIVE OR ACTIVE? SUMMARY

10 CHAPTER 5: Building Investment Portfolios CHOOSING THE MANAGER MOVING ON TO OPERATIONAL DUE DILIGENCE A SAMPLE (NON-EXHAUSTIVE) LIST OF OPERATIONAL CHECKS PART 3 PORTFOLIO SELECTION

11 CHAPTER 6: Moving Towards Liability Driven InvestingTHE TIME VALUE OF MONEY THE BASICS CONTINUED: REAL VERSUS NOMINAL DISCOUNTING A SIMPLE AND BRIEF LOOK AT BONDS IMMUNISATION THEORY AND FRANK REDINGTON AN INTRODUCTION TO INTEREST RATE SWAPS AN INTRODUCTION TO INFLATION-LINKED SECURITIES

12 CHAPTER 7: The Defined Benefit Pension Plan and Explicit Liabilities THE BOOTS EXAMPLE THE STAKEHOLDERS IN A TYPICAL PLAN WHAT ARE THE LIABILITIES?

13 CHAPTER 8: ESG, Governance and the Pensions Industry THE UN PRI THE INCREASING IMPORTANCE OF ESG THE MAIN APPROACHES TO ETHICAL INVESTING ESG: A SCREENING APPROACH ESG: AN INTEGRATION-BASED APPROACH IMPACT-BASED ESG INVESTING ENGAGEMENT-BASED ESG INVESTING ESG IN HISTORY INCORPORATING ESG INTO THE SIP THE REVISED STATEMENT SHOULD

14 CHAPTER 9: Moving Beyond Liability-Driven InvestmentTHE WORLD OF CDI WHAT IS THE DIFFERENCE BETWEEN LDI AND CDI? CREDIT WHERE IT'S DUE CASH FLOW-DRIVEN INVESTMENT IN ACTION

15 CHAPTER 10: The Statement of Investment Principles DRAWING UP A STATEMENT OF INVESTMENT PRINCIPLES A SAMPLE STATEMENT OF INVESTMENT PRINCIPLES STATEMENT OF INVESTMENT PRINCIPLES FOR THE ABC PLAN

16 CHAPTER 11: Liability-Driven RoboAdvice and the Development and Digitisation of the Industry WEALTHTECH: HOW WEALTH MANAGERS AND THEIR CLIENTS ARE EMBRACING NEW TECHNOLOGIES FROM WEALTHTECH TO ROBO-ADVICE A BRIEF INTRODUCTION TO ROBO-ADVICE ADVICE OR GUIDANCE: ROBO-ADVICE OR PARTIALLY AUTOMATED DIGITAL GUIDANCE FURTHER DEVELOPMENTS IN LDI WHAT IS CASH FLOW-DRIVEN INVESTMENT? THE EVOLUTION OF LDI

17 Index

18 End User License Agreement

1 Chapter 4TABLE 4.1 The drag on returns from higher costs

2 Chapter 5TABLE 5.1 A Comparison: The Asset Managers and The Asset Gatherers

3 Chapter 6TABLE 6.1 LIBORTABLE 6.2 The Inflation Swap Market

4 Chapter 7TABLE 7.1 The cost of a long dated cashflow

5 Chapter 9TABLE 9.1 The hypothetical return expectations and objectives of an investor ...TABLE 9.2 Suggested Portfolio Composition for the Gilts + 125 target

1 Chapter 1 FIGURE 1.1 Assets vs. Liabilities

2 Chapter 5FIGURE 5.1 Asset Allocation

3 Chapter 6FIGURE 6.1 The mechanics of an inflation swap

4 Chapter 9FIGURE 9.1 Sample investment universe

1 Cover Page

2 Table of Contents

3 Begin Reading

1 ii

2 iii

3 iv

4 v

5 xi

6 xii

7 xiii

8 1

9 2

10 3

11 4

12 5

13 6

14 7

15 8

16 9

17 10

18 11

19 12

20 13

21 15

22 16

23 17

24 18

25 19

26 20

27 21

28 23

29 24

30 25

31 26

32 27

33 28

34 29

35 30

36 31

37 32

38 33

39 34

40 35

41 36

42 37

43 39

44 40

45 41

46 42

47 43

48 44

49 45

50 46

51 47

52 48

53 49

54 50

55 51

56 52

57 53

58 54

59 55

60 56

61 57

62 59

63 60

64 61

65 62

66 63

67 64

68 65

69 66

70 67

71 68

72 69

73 70

74 71

75 73

76 74

77 75

78 76

79 77

80 78

81 79

82 80

83 81

84 82

85 83

86 84

87 85

88 86

89 87

90 88

91 89

92 90

93 91

94 93

95 94

96 95

97 96

98 97

99 98

100 99

101 100

102 101

103 102

104 103

105 104

106 105

107 106

108 107

109 108

110 109

111 110

112 111

113 112

114 113

115 114

116 115

117 116

118 117

119 118

120 119

121 120

122 121

123 122

124 123

125 124

126 125

127 126

128 127

129 128

130 129

131 131

132 132

133 133

134 134

135 135

136 136

137 137

138 139

139 140

140 141

141 142

142 143

143 144

144 145

145 146

146 147

147 148

148 149

149 150

150 151

151 152

152 153

153 155

154 156

155 157

156 158

157 159

158 160

159 161

160 162

161 163

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.

The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more.

For a list of available titles, visit our Web site at www.WileyFinance.com.

DANIEL TAMMAS-HASTINGS

This edition first published 2021

Copyright © 2021 by Daniel Tammas-Hastings. All rights reserved.

Registered office

John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom

For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher.