1 / 7

Investment Challenges and Opportunities in a Low Interest Rate Environment

Explore investment strategies and risk management techniques in a low interest rate environment, focusing on maximizing surplus and meeting liability payments. Discover the impacts and consequences of low rates, as well as innovative investment approaches.

acannon
Download Presentation

Investment Challenges and Opportunities in a Low Interest Rate Environment

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Investment Challenges and Opportunities in a Low Interest Rate Environment 12th financial risk international forum Institut Louis Bachelier

  2. Knownliabilities are decreasing and the first horizon isshortening Investment objectives : Honor the liabilitypayments Maximise the remaining surplus in order to create value LDI implies 2 kinds of assets : hedging assets and performance seeking assets but managing the risk on the surplus nowalsorequiresinvesting in bonds

  3. Meeting the objectives Maximizing the surplus withinrisklimits - Mainly performance assets - Somefixedincome assets • Hedging the liabilities • Mainlyfixedincomeinvestmentseitherbuy and hold or withrollingmaturities • Some performance assets Monte carlo simulations Stress tests CVaR 1% in 2024 Medianexpected value in 2024 Utility function

  4. Impacts ans consequences of low rates Low and lowerexpectedreturnseither for the fixedincome assets and for the performance assets Lower protection if none of bond instruments in case of a fall in equities Asymetry of riskgiven the economiccontext (higherlosses to beexpected if rates or default increase) High valuation of fixedincome assets (négative yield for govies, spread compression in the coporate bond markets …)

  5. Riding the riskcurve in the search for a balanced return Hedging assets Performance seeking assets Option hedgedequities Privatedebt High Yield Govies Corporate bonds

  6. What has done the FRR : searching innovation withintraditionnal asset classes Seek extra performance in equity assets through smart beta techniques Allow for some high yield in the investment grade mandates (at the manager discretion) Allow for longer maturitycorporate bonds in order to capture higher spread and primarymarket premium whilehedging part of the duration Hedgeequitieswith options allowing for a higher allocation withlimitedrisks

  7. What has done the FRR : looking for and invest in alternative asset classes Seek premium and lowervolatility in privatemarkets (privatedebt, privateequity, infrastructure, real estate) Search for new types of investments : cat bonds, hedgefunds, riskpremia

More Related