The first step in constructing a bespoke CDI portfolio is to understand the long-term objectives of the scheme in question in terms of return expectation and risk tolerance. On that basis BNPP AM undertakes a modelling exercise to optimise a CDI portfolio versus the expected cashflows as a benchmark.
The second step is to optimise the CDI allocation with the non-CDI asset allocation (notably those that are impacted by the CDI allocation).
The first step in the process is to establish the client’s risk budget and model an optimised CDI allocation with respect to the cashflow requirements. This includes an assessment of the liquid components of the portfolio, the interaction with illiquids and the long-term flightpath (or design thereof).
This can be done in conjunction with third party investment consultants or on a holistic basis by BNPP AM. In designing a dynamic implementation flightpath, it is possible to structure a portfolio with long-term objectives in mind, such as buy-out or the transfer of a sustainable portfolio to a captive insurance solution.
The second step in the process is to assess the feasibility of supply with respect to the target allocation and design a dynamic implementation approach that oversees the transition to CDI assets over the planned period.
This approach takes into account relative value, liquidity and diversification.
Holistic CDI approaches monitor and report on the interaction of CDI assets with more liquid components and monitor relative value triggers with respect to underlying asset classes.
The pensions solutions team conduct active reconciliation of the long-term investment strategy versus flightpath, objectives and risk budget.