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INVESTMENT PROCESS PENSIONS

Resolving conflicts, achieving goals

Goals

✓ Capital preservation after inflation

✓ Low risk of loss

✓ Stable and predictable (annual) income (distributions)

✓ Attractive risk-adjusted returns

✓ Security and availability of the capital invested at all times

Conflicts

✓ Financial repression (negative real interest rate)

✓ Volatile interest rate environment

✓ Fear of persistently high inflation

✓ Rising global debt of governments, companies and private households

Solutions

✓ Active management of asset allocation (sub-segments)

✓ Active bond management (credit rating, duration and currency management)

✓ Focus on liquid assets

✓ Selection (“bond-picking”) is gaining in importance

INVESTMENT PROCESS PENSIONS

Market analysis & investment selection

01 Determination of credit risk profile

Which ratings are permitted and how should they be weighted?

02 Approach & selection

Duration & allocation (1-3, 3-5, 5-7, 7-10, 10+ years), duration management depending on the fundamental outlook and return prospects

03 Due diligence

Sector allocation (financial, industrial companies) Determination of bond segments (government bonds, corporate bonds)

04 Negotiations & conclusion

Which currencies are permitted and how should they be weighted?

INVESTMENT PROCESS PENSIONS

Selection of bond portfolio

TOP-DOWN

Macro analysis

✓ Long-term growth opportunities

✓ Debt and fiscal policy

✓ Political and economic risks

✓ Demography

Countries & Currencies

Countries & Currencies

✓ Central bank policy

✓ Development of the money supply

✓ Price development

✓ Inflation expectations

Forecast: yield curve & interest rate levels

Opportunity-risk analysis

✓ Valuation / relative value analysis

✓ Debt-equity ratio & profitability

✓ Level & trend of credit default rates / credit cycle

✓ Legal & regulatory environment

Allocation to bond segments
PENSION PORTFOLIO BONDS
PENSION MANDATE
Fundamental analysis
Quantitative factors
Structural factors
INVESTMENT PROCESS PENSIONS

Diversification and active allocation as
Success factor for bonds

Standard annuities

High-quality bonds

✓ Government bonds

✓ Inflation linked bonds

✓ Covered bonds

✓ FRN IG Corporates (EUR & USD)

✓ IG Corporates (EUR & USD)

Active allocation

Depending on the market situation or return and risk expectations

Special annuities / market inefficiencies

Additional income due to misvaluations and undervaluations

✓ Subordinated bonds banks

✓ Subordinated bonds insurance

✓ Hybrid bonds corporates

✓ Convertible bonds

✓ High yield bonds

✓ EM hard currency bonds

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