Notwithstanding the adverse economic impact of COVID-19, Aon believes now is an attractive point to incorporate global investment grade credit into your liability driven investment strategy to harvest the elevated illiquidity element available within current credit spreads, particularly in longer dated credits.
Selling some gilts from within the liability hedging portfolio, whilst retaining overall hedging levels, and selling growth asset diversifiers or absolute return bond funds that have retained their value over 2020, can finance the credit investment.
Perhaps 0.5% p.a. could be added to expected returns and investment risks, like trustees’ cashflow risk and sponsors’ future accounting position volatility, reduced. A credit allocation also helps reduce volatility relative to insurer pricing for trustees with a long term target of buy-out or phased buy-ins along the way.
Aon’s existing client investment solutions enable trustees who wish to invest immediately to capture current spreads to do so.
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