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A significant interest rate fall. This may adversely increase the liabilities of schemes insufficiently hedged against interest rate risk.A substantial fall in equity markets. Likely to increase deficits of schemes with large equity exposures and minimal downside protection.Increase in market expectation of future inflation. A sharp increase may materially increase the value of scheme liabilities.Reaching a consensus to re-risk is a difficult journey, one beset with many awkward decisions. For instance, the trustee board may feel uncomfortable about buying in to a falling equity market and metaphorically ‘catching a falling knife’. Furthermore, the adverse market conditions that triggered re-risking may negatively impact the financial position of the sponsor and possibly the strength of the sponsor covenant.However, once an agreement to re-risk has been reached, trustees need to consider the practicalities of implementation carefully. This includes determining an appropriate level to which the scheme should be re-risked. For example, should the scheme be re-risked back to the allocation at the start of the journey plan, beyond this level or just back to the previous point of de-risking?Trustees also need to consider whether re-risking should be an automatic process delegated to their chosen adviser, or if they would prefer trustees, company representatives and advisers to review the position when a re-risking trigger is breached.With de-risking, there is usually a pre-defined agreement that, once funding level triggers have been breached, the asset allocation will be adjusted with a view to lowering the inherent level of risk being undertaken in the portfolio. By contrast, when a re-risking trigger has been breached, the process requires far more discussion and engagement from a wider range of stakeholders, not least the company sponsor. SEI’s Cyprian Njamma highlights some of the pitfalls for trustees during the re-risking process.Journey planning for a pension scheme involves balancing the risk taken in the pension scheme in accordance with the need to take risk. As a result, higher funding-level positions are usually accompanied by de-risking of the scheme’s portfolio to bank gains and protect the future funding level.In practice, this involves regular monitoring of the funding level, and where significant outperformance occurs relative to its expected path, the portfolio is ‘de-risked’ by reallocating a portion of growth assets such as equities to liability-matching assets – i.e. bonds and other liability-sensitive instruments. Funding-level outperformance usually leads to a lower deficit position and typically lower repair contributions required from the sponsor. For these reasons, de-risking has a feel-good factor to it.In contrast, re-risking naturally has anything but a feel-good factor to it. Why? Because it is only necessary to consider re-risking after an adverse market event has already hurt the funding level position of the scheme. Re-risking may be required where the funding level performs below journey plan expectations, and other options such as higher contributions and/or lengthening the journey plan have already been considered. Quite simply, to get back onto the ‘journey path’, higher returns would be required, which invariably entails assuming higher risk. As pension schemes have been made all too aware over the past decade, scenarios can arise that necessitate re-risking, and these include: Execution is keyBoth re-risking and de-risking are amongst the practical techniques trustees can employ to help manage funding volatility in line with the need to take risk along a recovery plan. And although re-risking may conceptually sit uncomfortably with trustees, occasions may arise that warrant its use. As such, it is advisable to incorporate re-risking along with the full range of de-risking and insurance-based de-risking options into a fully bespoke journey plan for pension schemes.Naturally, both re-risking and de-risking require regular monitoring of the funding level together with an ability to react to fast moving market changes. This is hugely challenging for many trustees who are constrained by a lack of resources, be that of their own time or expertise. Market conditions can change rapidly, requiring strategic changes in a far timelier manner than is possible through a quarterly decision-making process.Outsourced solutions such as fiduciary management –otherwise known as ‘implemented consulting’ or ‘delegated consulting’ – can help address these problems by effectively acting as an in-house manager and plugging any resource and knowledge gaps. This includes taking responsibility for continuously monitoring the funding level and de-risking or re-risking along the journey plan as opportunities arise. The beauty of this arrangement is that trustees retain strategic control of the scheme but have the comfort of knowing that day-to-day investment responsibilities are being undertaken on their behalf within clearly defined parameters.Cyprian Njamma is an asset and liability analyst at SEIThis article reflects the views of the individual author and not necessarily those of SEI
The prestigious MTN FA Cup trophy is set to arrive in the Western regional capital Sekondi –Takoradi on Tuesday ahead of Sunday’s grand finale between reigning Champions Asante Kotoko and Medeama FC at the Sekondi Stadium, Essipong on Sunday August 30.Regional Football Association (WRFA) President Mr. Kojo Yankah will receive and officially welcome the trophy and the FA Cup Committee’s (FACC) delegation to the Western region.The WRFA President will then lead the delegation to the palace of Nana Kobina Nketsia V, Omanhene of the Essikadu Traditional Area to pay a courtesy call on him.Later in the day, the delegation will pay a courtesy call on the Regional Minister Hon. Paul Evans Aidoo at the Regional Coordinating Council to present the trophy and officially invite him to Sunday’s final match.On Wednesday, the FACC delegation will be in Kumasi to pay a courtesy call on the Life Patron of Asante Kotoko Otumfuo Osei Tutu II to officially inform him about the final match. There will be visits to other sponsors of Asante Kotoko and various media houses. Thursday will be the turn of the people of Tarkwa as the delegation will visit Osagyefo Dr. Kwamena Enimel V, Omanhene of Wassa Fiase Traditional area. This will also include visits to sponsors of Medeama SC and various media houses.Friday’s pre match press conference will also allow the media to interact with the two teams and to know how prepared they are for the finals.There will be a float through the principal streets of Sekondi-Takoradi on Saturday morning before the pre-match technical meeting set for 11:00 am.There will then be mandatory shake ups for both teams at the Sekondi Stadium between 4pm and 5pm before Sunday’s grand finals.Sunday’s clash will the second MTN FA Cup final between the two clubs in two years as Medeama beat Kotoko by a lone goal to lift the 2013 edition of the competition. And Sunday’s final promises to be exciting as Kotoko seeks for a revenge of that defeat while Medeama aim for a repeat of that feat.–Follow Joy Sports on Twitter: @Joy997FM. Our hashtag is #JoySports