Opinion: Managing the cashflow squeeze

Trustees and sponsors will now have a clear view of the impact of the COVID-19 crisis on their scheme’s funding position. But there’s a potential cashflow squeeze ahead which creates dangers for schemes that aren’t well prepared.

Schemes are facing a squeeze on cashflows from both directions:

• Income from invested assets is likely to fall - for example from property and private equity holdings – and in some cases employer contributions may be deferred
• Outgoings are increasing, through a combination of collateral or manager calls and in some cases increases in benefit payments as members retire early or take transfers.

Trustees should be addressing these risks now and planning ahead. Otherwise schemes could become forced sellers of assets at depressed prices or face reductions in hedge ratios if they can’t meet LDI collateral calls.

In this short video Nick Evans, our Head of Investment Advisory, discusses this cashflow squeeze and also looks ahead to what market changes mean for LDI strategies.

Please contact us if you would like to discuss further.