Aon plc has launched the Zone Framework for pension scheme investment in the UK. The firm writes that it is designed to support clients’ decision-making in the current environment where funding level improvements and increased endgame options are opening up a wider range of medium and long-term goals.
While the traditional focus on de-risking journey plans and generating returns to close funding gaps, remains relevant for some schemes, many are now seeking to preserve and capitalise on the improved position they have reached – and this requires new ways of thinking about investment strategy, the firm writes. The Zone Framework supports investors to do this as they revisit their objectives and consider the opportunities that are now available to them.
The Zone Framework is comprised of four clear segments:
Zone identification: agree investment priorities – asset growth, downside protection or endgame execution;
Optimise investment strategy based on priorities;
Navigate opportunities to take advantage of market conditions;
Evaluate progress against key objectives.
Daniel Peters, senior partner and head of investment strategy in the UK at Aon, says:
“Designing a successful investment strategy is as much about asking the right questions as providing the right answers. The Zone Framework allows trustees and sponsors to ask the right questions and to identify clearly what success means to them. This helps them to balance risk management with growth which is crucial if investors are to avoid falling into the trap of overly conservative strategies that can actually increase the risk of a deficit reappearing.
“This new innovation is resonating with our pension scheme clients and we are looking forward to working with them to drive better decisions and outcomes.”
Shelley Fryer, associate partner in Investment in the UK at Aon, says: “With improved funding levels, we are seeing a shift from a traditional journey-focused strategy to a more stable ‘zone’ mindset, where investors can feel more comfortable with their current positions. By identifying which ‘zone’ they are in — growth, protection, or endgame — trustees and sponsors can set their priorities, implement strategies appropriate for their zone and ensure their monitoring is linked to those goals.”
By clarifying objectives and agreeing what ‘risk’ means to each scheme, Aon writes that its range of analytical tools allows a better understanding of key downside scenarios and results in a shift from mechanical de-risking to optimising portfolios, allowing them to be market aware and to better-positioned to capitalise on short-term wins.
Aon’s Zone Framework is being rolled out to all Aon’s UK investment clients. Son writes that early adopters of the framework have been very positive, with some changing their investment strategies to be better aligned with their medium-term objectives and, in some cases, increasing their return targets.
