Standard Life Investments

Investment Insight

Thought-provoking analysis of key investment issues

Our series of Investment Insight papers deliver thought-provoking analysis of key investment themes. Through focused and unique insights into topical issues, we seek to provide investors with a deeper understanding of the current challenges and opportunities within global investment markets.

Solving the Insurance Outsourcing Puzzle

Solving the Insurance Outsourcing Puzzle

Asia Pacific insurers face a conundrum on investments in global assets and alternatives — take on the expensive cost of pursuing such investments on their own or consider outsourcing more investment management to external asset managers.

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Rethinking DC Default Design - Part 1: budgeting for risk

Rethinking DC Default Design - Part 1: budgeting for risk

We delve further into the challenges of designing a good default investment option for a defined contribution (DC) pension scheme. We evaluate the impact of changes to investment componentry and show that, by reducing volatility without sacrificing return potential, contribution rates can be lowered. Our findings underline that quality and not simply cost matter during the accumulation phase of pension saving. In this context, quality is multi-faceted.

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Gilt repo versus swaps in liability hedging: a clear choice?

Gilt repo versus swaps in liability hedging: a clear choice?

Robert de Roeck -

Pension fund trustees looking to hedge interest rate and inflation sensitivities in the value of their liabilities have turned to a variety of market instruments in recent years. For those looking to access unfunded duration exposure, i.e. a leveraged structure, the choice has generally been between swaps and gilts funded on repo (or via gilt total return swaps, which are broadly similar).

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Smaller Companies

Smaller Companies

Returns from smaller companies have outstripped those of large-cap peers over the longer term. In this paper, we examine the reasons for this small-cap effect and outline why we believe the factors causing it should persist for some time.

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Asia Pacific Insurance Survey

Asia Pacific Insurance Survey

The Asia Pacific insurance industry is being reshaped by twin forces: low interest rates and modernising regulation. We surveyed investors responsible for $4 trillion of assets. We identify five themes that are driving a fundamental change in the way investment decisions are made.

Executive Edition

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Thematic House View

Thematic House View

When forecasting real estate performance, as well as making top-down allocation decisions, many asset managers consider two main factors – geography and asset type. However, a number of additional, more thematic factors can differentiate returns and bring another important dimension to top-down allocation. In theory, thematic factors are infinite but they can include the dominance of the asset (size), lease length, covenant strength, asset quality (flexibility/specification/sustainability) and location. While defining these factors can divide opinion on the classification of an asset, what is clear is that at different points in the cycle they have a material impact on performance. In this paper, we use the UK commercial real estate market to assess how these factors can, if harnessed properly, help to deliver enhanced performance and improve decision making.

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Impact Investing - Embracing the UN’s Sustainable Development Goals in mainstream investment

Impact Investing - Embracing the UN’s Sustainable Development Goals in mainstream investment

Euan Stirling -

Amanda Young - Head of Responsible Investment

Impact investing’ involves investing in companies and investment portfolios that have the intention of generating positive social and environmental impacts alongside financial returns. While environmental, social and governance (ESG) analysis has become a necessary tool for investment managers, screening for positive rather than negative impact remains a niche activity.

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From UK Mutual Life Insurer to Global Investment Company – Standard Life’s transformation

From UK Mutual Life Insurer to Global Investment Company – Standard Life’s transformation

Bruce Porteous - Investment Director, Insurance Solutions

Over the past 20 or so years, Standard Life has transformed itself from a traditional UK-focused mutual life insurer, owned by its members, to a successful, publicly listed global investment company. At Standard Life Investments, we increasingly encounter real interest from existing and prospective insurance clients around the globe as to how we achieved this transformation. In this paper, we document that journey.

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Populism and the Threat to Globalisation

Populism and the Threat to Globalisation

Jeremy Lawson - Chief Economist

We live in an era of globalisation. And an era of increased income inequality. Are the two linked? And are they the driver behind the rise of populist parties in Europe, the election of President Trump, Brexit? In this paper we explore these issues alongside the social and cultural changes that have happened in tandem. We consider the implications for the future of globalisation and for markets.

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The Investment Challenges of Decumulation, Part 2

The Investment Challenges of Decumulation, Part 2

Following on from our paper ‘The Investment Challenges of a Decumulation World’, this second paper explores further the investment aspects of the decumulation challenge. In particular, it seeks to illustrate:

  • the substantial added value of a multi-asset growth approach to savings in retirement compared with passive equity, even after fees and
  • whether there is a single ‘drawdown’ level that is appropriate for all.

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The impact of slowing working-age population growth

The impact of slowing working-age population growth

The developed world is at a turning point – growth in the working-age population has peaked, economies are slowing, and voters are displaying scepticism for immigration. This raises questions over how economies can grow without more people of working age to wield a shovel or tap a keyboard. In turn, this has implications for real estate and the number of new buildings needed in the future. In this paper, we focus on the economic and commercial real estate impacts of slowing growth in the working-age population.

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Embracing Alpha in a Low Return World

Embracing Alpha in a Low Return World

Jonathan Price - Global Head of Product & Investment Specialist

With future investment returns likely to be lower than previously enjoyed, what can investors do to increase returns. This paper suggests if market beta contributes less to overall returns than before, alpha will become an ever more important return component. We discuss how alpha can be captured across equities, bonds and private markets.

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Impact Investing

Impact Investing

Amanda Young - Head of Responsible Investment

Impact investing – once a niche corner of the market – has entered the mainstream. This has been driven by increasing awareness among investors of the important role they can play in order to help address the world’s many environmental and social challenges. Impact investing allows them to meet this desire – while still seeking a financial return. This paper looks at the various types of impact investing, how it is measured and what lies ahead for this compelling proposition.

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 Time to rewrite the UK’s fiscal rulebook

Time to rewrite the UK’s fiscal rulebook

James McCann - UK/European Economist

Stephanie Kelly - Global Strategy Analyst

The first in a series of Public Policy Perspectives, a new research publication that aims to broaden the debate on policy issues across a range of economies and make neutral, evidence-based recommendations.

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The Benefits of Growth with Lower Volatility

The Benefits of Growth with Lower Volatility

David Bint - Investment Director

Malcolm Jones - Investment Director, Absolute return and multi-asset investing

In this paper, we look at some ways of managing volatility and demonstrate how the inclusion of a low-volatility growth strategy can provide a superior overall solution. We go on to introduce an ‘enhanced-diversification’ approach, a concept we developed to achieve reduced volatility without compromising growth potential.

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Global Real Estate Update

Global Real Estate Update

Anne Breen - Head of Real Estate Research & Strategy

A quarterly look at the key themes driving global real estate, plus detailed insight into the regional markets and our latest real estate House View.

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The Investment Landscape

The Investment Landscape

Guy Stern - Head of Multi-Asset & Macro Investing

The investment landscape has changed dramatically over the last 20 years. It has certainly become more complex and volatile. As a result , investor needs have evolved, evidenced particularly by the increase in outcome-orientated approaches. This paper explores why success in decoding client, market and portfolio signals is crucial to ensuring asset managers create value for their clients.

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Improving governance - Holding the key to India's prosperity

Improving governance - Holding the key to India's prosperity

Mike Everett - Governance & Stewardship Director

While India’s long-term "growth story" remains firmly intact, concerns around corporate governance continue to linger. With that in mind, Mike Everett, Governance & Stewardship Director at Standard Life Investments, recently visited the country where he met with the "Big-Four" audit firms, board consultants, the British High Commission, and a number of Indian Banks. Here, he details the findings from these conversations, including the progress that has been made on this vital issue – as well as the challenges that remain.

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Absolute Return Bond Strategies

Absolute Return Bond Strategies

Alex Gitnik - Investment Director

In this paper, we examine the case for absolute return fixed income investing and the key attributes of these investment solutions.

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Leisure in the UK Retail Environment

Leisure in the UK Retail Environment

As the digital era has made shopping more convenient for consumers, the need for retailers to deliver a unique physical shopping experience is increasingly important. Leisure (including food & beverage, cinemas and entertainment) has a significant role to play in this ever-demanding retail landscape. In the latest paper from our real estate research team, we examine leisure’s growth as part of a retail offering and seek to establish whether there is a clear link with rental growth. In doing so, we investigate leisure’s influence on both shopping centre assets and major UK town centres.

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Forward-Looking Scenario Analysis

Forward-Looking Scenario Analysis

Malcolm Jones - Investment Director, Absolute return and multi-asset investing

Historical stress testing is now an established approach to tail-risk management. However, there is less consensus on how best to undertake forward-looking scenario analysis. This paper examines how we might incorporate expert opinions into projections of portfolio outcomes. We also illustrate that using a diversified multi-asset approach can help mitigate losses in such extreme market scenarios.

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Evaluating Multi-Asset Strategies

Evaluating Multi-Asset Strategies

Stuart Peskin - Investment Director, Multi-Asset Strategies

To fairly evaluate the performance of a multi-asset portfolio requires looking beyond simple correlation measures. In this paper, we discuss the limitations of correlation and propose a range of techniques to help us appraise the effectiveness of a multi-asset strategy.

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UK Pension Reform - One Year On

UK Pension Reform - One Year On

Malcolm Jones - Investment Director, Absolute return and multi-asset investing

The 2014 UK pension reforms have implications for pension savers and providers. In this article, we assess some of the developments that have occurred throughout the year and compare DC savers’ actions with those expected when the changes were announced. We also look at what DC plan providers might do to ensure individual member needs can be accommodated.

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Food Security in China

Food Security in China

Amanda Young - Head of Responsible Investment

China is the world’s most populous country. As such, issues around food production are of paramount importance. This extends to the environmental and social risks associated with the food industry. These include water scarcity, pollution and food safety standards. Rebecca Maclean, Responsible Investment Analyst, recently visited China, meeting with companies, government officials, specialists and farmers to discuss key issues surrounding the sector. This paper highlights her intriguing findings and their implications for investors.

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Managing a Matching Adjustment Portfolio

Managing a Matching Adjustment Portfolio

The Solvency II Directive codifies and harmonises EU insurance regulation. The directive, in force since 1 January 2016, relates primarily to the amount of capital insurers within the EU must hold in order to reduce insolvency risk. The purpose of this paper will be to examine, from an investment manager's perspective, how EU insurers can use Solvency II's Matching Adjustment (MA) provisions. The MA provides insurers with a capital efficient mechanism for holding eligible long-term assets to match eligible life or annuity insurance obligations.

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The Rise of the Millennials

The Rise of the Millennials

Amanda Young - Head of Responsible Investment

The financial industry and the products it supplies have always evolved to meet market challenges and opportunities. Today is no different. One of the key factors that will drive the industry over the coming years is the rise in prominence of the so-called Millennials (also known as Generation Y). This is the generation born between the early 1980s and 2000. The expectations and values of this tech-savvy group differ from those that have gone before them, most notably when it comes to social, economic and environmental issues.

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UK precarious working practices

UK precarious working practices

Amanda Young - Head of Responsible Investment

Companies with resilient workforces are better placed to achieve long-term business success. A rise in the use of zero-hours contracts, modern slavery and debates around living wages are creating labour risks and challenges for UK companies.

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Unconstrained Investing - The Freedom to Perform

Unconstrained Investing - The Freedom to Perform

Mikhail Zverev - Head of Global Equities

What exactly is 'unconstrained investing'? More importantly, why do investors increasingly need to consider this key investment strategy as a complement to their equity allocation? This paper explains the significant return, risk and diversification benefits that unconstrained strategies can bring to portfolios.

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Solvency II & Absolute Return Investing

Solvency II & Absolute Return Investing

Bruce Porteous - Investment Director, Insurance Solutions

Craig Turnbull - Investment Director, Insurance Solutions

In this paper, we examine the important implications of Solvency II, the latest European Union Directive designed to harmonise insurance regulation across member states. In particular, we highlight how the risk-based nature of the Directive, together with its 'look-through' requirement, confirms the underlying risk efficiency of well-diversified absolute strategies. We also show how these strategies can be used to improve capital-efficient returns.

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The Environment – Considerations for companies and investors

The Environment – Considerations for companies and investors

Amanda Young - Head of Responsible Investment

This paper outlines how environmental risks and opportunities can influence company valuations, the sectors most exposed and our approach to integrating these considerations into the investment process.

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Optimal Matching Adjustment

Optimal Matching Adjustment

Bruce Porteous - Investment Director, Insurance Solutions

Solvency II is an extremely important EU directive with significant implications for UK and European insurers. One of the issues which need to be considered is how to optimise the Matching Adjustment. In this paper, we discuss the gains available to insurers prepared to consider actively constructing optimal MA asset portfolios.

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Anti-Bribery and Corruption

Anti-Bribery and Corruption

Andrew Mason - Responsible Investment Analyst

The clandestine practices of bribery and corruption are often seen as ‘how business is done’ in certain sectors and regions. However, these views are starting to shift, as governments, companies, investors and civil society demand that these practices be eradicated. In this paper, we examine the risks and challenges facing investors in this complex area and outline our approach to ensuring better client outcomes.

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Stranded Assets – Challenging the status quo

Stranded Assets – Challenging the status quo

Rebecca Maclean - Responsible Investment Analyst

Fossil fuels have been integral to global economic development. Recent research questions whether oil, gas and coal assets will be extracted and burnt indefinitely. In light of climate regulation, we consider environmental, social, political and economic factors that are changing the outlook for fossil fuels and the implications for long-term investors.

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The Investment Challenges of a Decumulation World

The Investment Challenges of a Decumulation World

Malcolm Jones - Investment Director, Absolute return and multi-asset investing

The 2014 reforms set out in the Budget provide UK pension savers with significantly greater freedom than they have had to date. The reforms are likely to have major implications for DC scheme investment strategies — in particular for the lifestyle strategies adopted, and for individuals’ investment choices regarding the post retirement period. In this paper, we examine some of these challenges. To do this, we model different investment strategies using historical financial and economic data, to determine the impact on member outcomes and the certainty of achieving these.

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