Cashflow driven investment (CDI)Increasing certainty of outcome for pension schemes
CDI can provide far more certainty of outcome compared with a growth and matching approach
Combining CDI with well-established LDI techniques can achieve a close cashflow match
We can tailor the risk profile of a CDI portfolio to meet covenant constraints or longer-term objectives such as buy-out
A middle path for scheme liabilities as they fall due
Almost all pension schemes have an objective of meeting liabilities as they fall due. Most aren't in a position to invest in a 'cashflow matching' gilt portfolio, so look to achieve this objective using higher-risk assets, such as equities, to close their funding gap. In doing so they effectively rely on a combination of dividend income and equity sales to meet some of the cash outflow.
A CDI approach offers a middle path, with a large allocation to assets that provide both growth and a greater certainty of delivering the required cashflows without significant requirements for disinvestment in unknown future market conditions.
Greater confidence in achieving target returns
The main attraction of CDI is that, although there is less scope for significant upside when compared with equities, CDI assets are much more likely to achieve the target returns needed to meet each liability payment as it falls due.
CDI is generally most appropriate for relatively well funded schemes. However, even smaller schemes can still benefit by partially implementing CDI solutions, or by replacing traditional growth assets with higher yielding public and private fixed income assets.
Discover the CDI Made Simple Guide
Download the PLSA Cashflow Driven Investment (CDI) Made Simple Guide, authored by Schroders Solutions, which explains what this form of investment entails and how it compares to more traditional methods. It details how it can create certainty of outcomes for defined benefit schemes and the ways in which trustees can manage and monitor CDI.
"A CDI strategy is not just about cashflow matching. It has one aim: improve the certainty with which a pension scheme can meet its liabilities."
Head of Solution Innovation
Using everything we have to meet your goals
At Schroders Solutions, we’re uniquely set up to deliver an effective CDI solution working together according to suit your individual situation. We work with all our broader investment teams to draw on their capabilities and integrate solution design, public and private fixed income portfolios (including buy & maintain credit) and an LDI completion overlay to target scheme specific outcomes.