Fixing Fixed-Income: A New Approach for Decumulation Strategies

When it involves proposals to implement decumulation strategies, pension funds often consider that the fixed-income building block is the non-risky component of the allocation. Unfortunately, since fixed-income indices are constructed on the basis of constant duration, they do not deliver a fixed flow of revenues, because the indices are actually subject to interest rate risk for the whole duration of the decumulation strategy. This duration puzzle makes traditional fixed-income inappropriate for the implementation of retirement solutions and cash-flow-driven investment strategies more generally.

 

Based on EDHEC Risk Institute’s research in the area of Retirement Bond Portfolios, Scientific Beta is offering a new series of decumulation bond indices that secure, throughout the whole duration of the decumulation strategy, a series of fixed cash flows that are not exposed to either interest rate or credit risk.

 

To present the true risk-free asset for long-term pension strategies, this one-hour webinar, hosted by Pensions & Investments, the world’s leading newspaper for institutional investing, will be organized around the following major themes:

  • Presentation of the EDHEC Retirement Bond Portfolio and its usefulness for decumulation strategies
  • Superiority of the EDHEC Retirement Bond Portfolio versus traditional fixed-income portfolios in multi-asset decumulation strategies
  • How to replicate a Retirement Bond Portfolio: the case of the Scientific Beta Decumulation Index
  • Practical use case of the Decumulation Index in a post-retirement fund

 

SPEAKERS

Global Business Development Manager for Scientific Beta Greg Best is Global Business Development Manager for Scientific Beta and partners with plan sponsors, investment consultants, and asset managers to develop solutions for retirement investors. Prior to joining Scientific Beta, he was a Regional Director overseeing institutional sales and client service throughout the Western U.S. and Canada for Morgan Stanley Investment Management. Earlier in his career, he was a Director of Client Relations for AllianceBernstein Institutional Investments and focused on providing target-date and retirement income solutions to defined contribution plans. Greg holds an MBA from Columbia Business School in New York and is both a CFA and CAIA Charterholder.

Lionel Martellini, Director, EDHEC Risk Institute

Lionel Martellini is a Professor of Finance at EDHEC Business School and the Director of EDHEC-Risk Institute. He has also taught at UC Berkeley, USC and Princeton University. His work has been published in leading academic and practitioner journals and he has co-authored reference textbooks on fixed-income securities, goal-based investing and retirement investing. Professor Martellini is a member of the editorial board of Journal of Portfolio Management and Journal of Retirement, and has served as a consultant for large institutional investors and asset management firms in Europe and in the US. He holds Master’s degrees in economics, mathematics and statistics, as well as a PhD in finance from the Haas School of Business, University of California at Berkeley. Outside of his activities in finance, he more recently completed a PhD in relativistic astrophysics and has become a member of the LIGO/Virgo international collaboration for the observation of gravitational waves. ​

Shahyar Safaee, Head of Business Development, EDHEC-Risk Institute

Shahyar Safaee is a Research Director and Head of Business Development at EDHEC-Risk Institute. Before joining EDHEC-Risk Institute in 2020, Shahyar was a capital markets professional with a 20-year track record in both sell-side and buy-side roles, notably spending 18 years in J.P. Morgan’s Global Equities division in London, Paris, and New York, serving institutional clients in various capacities including quantitative research, trading, fund management, asset-based financing, and structuring. He holds master's degrees in engineering (Ecole des Mines de Saint-Etienne) and financial mathematics (Université Claude Bernard in Lyon).​

 

 

 

We invite your to read the edito "THE DECUMULATION PROBLEM?", published in the July edition of EDHEC-Risk Institute newsletter. In a nutshell, the decumulation problem is defined as the challenge involved in efficiently turning wealth into income, which stands in direct contrast with the accumulation problem, which is instead about efficiently turning income into wealth. In individual money management, the most typical decumulation problem starts when an individual retires, ceases to receive labor income, and starts to draw down on accumulated assets to generate the level of replacement income needed to sustain the target consumption level in retirement. The problem actually extends beyond individual money management to encompass all situations where an institutional investor is tasked with the complex challenge of managing assets while facing pre-committed outflows, as would be the case for example with a mature defined benefit pension fund or an endowment. As Bill Sharpe eloquently put it, the decumulation problem is indeed a hard and nasty problem, but its importance is so overwhelming that this cannot be used as an excuse for inertia.