How TPT Delivers Risk Clarity to Consolidated Defined Benefit Pensions
Bringing asset and liability risk into one, detailed view.
OverviewAn asset owner, investing like an asset manager
TPT Retirement Solutions (TPT),1 and its fiduciary manager TPT Investment Management (TPTIM), is one of the UK’s leading pension specialists with over GBP 11.1 billion in assets under management.2 TPT wanted to provide fiduciary management clients — primarily defined benefit (DB) pension schemes — with the benefits of asset consolidation.
To do so, TPT required an integrated and sophisticated view of asset and liability risk. It wanted to retain its DNA as an asset owner but invest like an asset manager. TPT sought a partner who could provide granular and customizable risk analytics. Considering the long-term investment horizon of pension schemes, and TPT’s commitment to responsible investing, it also required a partner who leads on quantifying the impacts of climate and sustainability.
TPT collaborated with MSCI to design a risk management tool that enables TPT and its clients to better understand risks and adapt investment goals to a realistic, detailed outlook for their portfolios.
Managed across TPT.
Served by TPT.
Serving its members.
ChallengeIntegrating disparate and sophisticated views of risk
The UK began driving consolidation of its large and fragmented DB pension market in 20175. TPT responded to this change by introducing DB Complete, a consolidation service designed to tackle longstanding challenges in the pension industry and leverage the advantages of asset pooling and consolidation.
Traditionally, DB investment services provided strong modeling and views of liabilities. The task was actuarial in nature — a mapping of projected payouts to employees and the risks associated with meeting those obligations.
But that approach failed to incorporate an equally sophisticated approach to asset management or to contextualize the scheme’s liabilities against investment performance and objectives. In essence, TPT needed to unify asset and liability risk into one efficient view and required the capability to scale this risk solution to a sophisticated and highly diversified portfolio.
To accurately model liability risk, TPT needed to assess how inflation would affect future pension payouts and how interest rate movements would determine the present value of those future pension payouts.
TPT needed to:
- Integrate its liability model with sophisticated asset risk assessments.
- Produce accurate, real-time deficit at risk and funding ratios.
- Account for specialized analytics across public, private and alternative assets.
- Align its climate risk modeling for more resilience and alignment with stakeholder objectives.
Still growing into the consolidation space, TPT had the opportunity to select only robust systems to support its strategy. They reached out to MSCI.
ActionAdopting tools to build resilience
TPT integrated MSCI’s advanced asset-liability risk analytics to gain a better view of how its investing fared relative to client objectives. Climate data integrated throughout also underscored a commitment to responsible investing.
TPT and MSCI built several critical capabilities into the new risk tool:
The tool gives TPT the ability to view pension obligations in the context of investment objectives.
Unlike the more common aggregated risk approach, this tool allows TPT to evaluate assets individually at the portfolio and portfolio holding levels.
MSCI’s tool quantifies a pension’s exposure to specific risk factors and provides insight into how each affects the overall deficit at risk.
Climate and sustainability data integration reflects stakeholder values and helps identify risks and rewards.
Typically, asset-liability risk evaluation is conducted by pension schemes on a quarterly, or less frequent, basis. With this tool, TPT can perform on-the-fly analysis, enabling TPT to evaluate and execute trades.
What MSCI deliveredBarraOne Analytics
Integrated asset-liability risk analytics, sustainability and climate data, and real-time granular portfolio insights to support enhanced pension risk management.
BarraOne
Make more informed investment decisions with a research-driven platform. Manage risk exposures across public, derivative and private asset classes.
“I have a high level of confidence in the risk analytics from MSCI. You can be more granular in the way you talk to clients about where risk is coming from in their investment portfolio.”
Peter Smith , TPTIM Investment Director
Impact Creating a unified risk framework
TPT is now able to better articulate to clients how much risk they are taking on, the source of that risk and whether the risk factors are intentional.
Such transparency enables clients to understand and adjust for their actual risk tolerance, which is difficult to parse with an incomplete picture. Consequently, clients are able to decide what level of covenant support they want to provide.
For example, a sponsor may have to consider improving funded status by either reaching for higher returns or paying more into the scheme. Thanks to the risk tool’s insights, TPT’s clients are better able to match their objectives with their actions.
Bringing MSCI’s background in public, private markets and climate data into the investment process and providing daily insights, TPT can make more timely asset allocation and rebalancing decisions in response to a shifting set of asset and liability risks and opportunities. This collaboration also gives trustees a total portfolio view, so they can make better informed and more confident decisions. In that regard, MSCI is helping TPT realize its goal of operating as an asset manager.
Adapted to clients
The risk solution enables clients with a clear view of their true risk tolerance, enabling better decisions.
Responsive to markets
With faster delivery, the risk solution helps TPT to adapt their strategy to evolving conditions.
Climate aware
Incorporating climate and sustainability data, TPT’s stakeholders can now assess how their investments align with climate goals.
A long-term view
TPT maintains its asset owner DNA while leveraging asset manager tools.
1 TPT Retirement Solutions (TPT) is a client of MSCI Inc. and MSCI ESG Research LLC and consented to its inclusion in this case study. TPT did not receive any compensation in connection with this article. Any results achieved by TPT are specific to its use case and are cited for informational purposes only. Other investors may not experience similar outcomes.
2 As of September 30, 2024.
3 As of September 30, 2024.
4 As of September 30, 2024.
5 DB Taskforce: The Case for Consolidation 0622-The-Case-for-Consolidation.pdf