There are many reasons why Local Government Pension Scheme (LGPS) members need equity protection, following a surge in investment markets, according to a derivatives specialist.
River and Mercantile derivatives managing director, Mark Davies, commented: “With the 2019 actuarial valuation fast approaching, and following strong market performance and an improvement in schemes’ funding positions, it is understandable that equity protection is being considered more and more by LGPS’.” Davies added that a one-size-fits-all solution is not practical and funds need tailored solutions and an active approach to equity protection.
In particular, Davies said the design of an equity protection mandate has to reflect a fund’s own circumstances and objectives. In addition, when implementation takes place, the derivatives available in the market are a key determinant of performance. Education of officers and members is also important. Funds should also use a provider with experience of providing structured equity products over the full market cycle.