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.

Modelling team and tools:
  • Establish the client’s risk budget
  • Set up a CDI modelling approach
  • Tailor current model(s)
  • Prepare the modelling team
Structuring the CDI solution:
  • Model the optimised asset allocation (taking into account the existing investment risk management policies)
  • Model the optimised CDI portfolio
Establishing LT investment strategy:
  • Establish the long-term investment objectives
  • Include the inflow schedule
  • Set up the dynamic evolution of the CDI allocation

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.

Real CDI asset supply:
  • Access supply and demand data
  • Perform feasibility study
  • Highlight origination and absorption bottlenecks
  • Assess need for listed and / or synthetic CDI assets
Transition approach:
  • Design transition plans for institutional investors
Integration into flightpath:
  • Design dynamic implementation approach
Dynamic execution:
  • Execute the transition to real / synthetic CDI assets over the planned period

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.

Ongoing CDI asset monitoring:
  • Performance and risk monitoring
CDI asset transition triggers:
  • Relative value trigger monitoring
  • Active and regular reconciliation of LT investment strategy, objectives and risk budget
  • Ongoing reporting for operations team

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