Over the past decade, cashflow-driven investing (CDI) has gained traction as pension plans have successfully de-risked and strengthened their balance sheets.
Plans are now able to strategically design allocations to fixed income debt so that income matches liabilities at high levels of precision, thus providing a more natural hedge and reducing the need for complex swap portfolios. Sometimes these cashflows are assumed to be contractually certain, or globally haircut according to a macro view.
But what about scenarios where expected default frequencies (EDFs) vary under various key climate change assumptions and show that the potential credit losses can be substantially larger than in the baseline case?
To assess the true impact of credit risk for pension plans engaging with CDI, we have developed a present value of the losses and a fair value credit spread measure to facilitate comparison with mark-to-market pricing.
Download our whitepaper to find out more.
