Client Type: UK Defined Benefit Pension Scheme
Sector: Institutional Asset Owner
Location: United Kingdom
Challenge:
A mature UK DB scheme was struggling to meet return targets within a liability-driven investment (LDI) framework. Its core portfolio was passively allocated and heavily hedged, with strict governance controls limiting the use of active strategies and illiquid assets. The fund needed to improve performance without breaching its mandate, increasing headline risk, or locking up capital.
Solution:
- Designed a portable alpha strategy using index derivatives to replicate beta exposure (equities and bonds), freeing capital from physical holdings
- Reallocated capital into targeted alpha strategies (absolute return, long/short credit, tactical macro) – selected for return and liquidity profile
- Structured overlays and reporting frameworks to comply with board-level governance, including daily attribution, risk metrics, and stress tests
- Embedded margin and liquidity forecasting to protect against procyclical liquidity shocks
Result:
- Achieved a 200bps performance uplift over benchmark with no increase in total portfolio Value at Risk (VaR)
- Improved funding ratio and reduced the need for future sponsor contributions
- Enhanced liquidity flexibility through lower cash drag and more dynamic collateral usage
- Boosted portfolio capacity by decoupling alpha generation from benchmark constraints
- Strengthened capital efficiency by reducing the capital footprint required for equivalent exposures
Value Delivered:
Turned a constrained pension mandate into a capital-efficient, performance-optimised portfolio – achieving real results while staying well within governance boundaries.