Pension Funds
Stronghold solutions can finance targeted investments & activities for pensions funds providing access to new tools for managers to realize enhanced risk adjusted returns.
Pension Fund Challenges & Current Strategies
Challenge
Defined benefit pension funds face the central challenge to meet their responsibilities to pensioners over time — a challenge made more difficult by economic conditions and volatility.
Current strategies
In the current economic environment, pension funds try to: (1) increase contributions and (2) seek higher returns by taking more risk.
Stronghold solutions introduce new tools, which complement and advance such strategies.
Transaction Overview
Performance investment selection
In Programs bond buyers can propose performance investments or evaluate investments presented by Stronghold. Suitable investments include project investment and/or financing, equities and equity indexes, high yield bonds, hedge funds, private equity, or off-loading distressed assets (see Risk Transfer below).
Arbitrage investment limits and policy guidelines
Programs provide targeted finance benefits - beyond their associated investment return - supporting safe investment exposure outside of policy guidelines. This application can increase diversification, capture opportunities not otherwise available, and increase yield on investment grade portfolios.
Risk transfer
Programs can transfer risk and volatility off an investor’s balance sheet and on to a designated protected cell’s balance sheet. At closing (i) the bond buyer purchases an investment grade bond then (ii) in an arms-length transaction, the issuing protected cell would purchase identified assets at an agreed price.
Liability Driven Investing (LDI)
The designated protected cell’s balance sheet holds long dated collateral reserves creating an off-balance sheet LDI asset, without the need or requirement to mark-to-market. In all possible scenarios affecting the instrument the buyer owns or receives the returns of this off-balance sheet asset during the life of a program and the value of the off-balance sheet asset at maturity or as part of a compensated pre-payment.
Alternative to Alternatives
Stronghold has developed an efficient approach to increase yield, an Alternative to Alternatives. In this application, pension funds would purchase a series of Stronghold-designed bonds over time. The performance investments of the protected cell issuing each respective bond would, in turn, purchase a 1.5X SP 500 Index exposure.
Historical analysis
A 45 year historical analysis initiating such instruments monthly from the early 1970s to the present computes the time for each issuance to meet the prepayment target of delivering a cumulative return on rolling 1 year U.S. Treasury Bill index plus 300 bp. The simulated issues deliver the excess return, on average, within 5 years.
Strategic use of the solution
Purchasing a series (ladder) of such bonds over time (quarterly or monthly) would enable pension funds to realize a reliable risk-adjusted return at low cost and provide for rolling liquidity, which the pension fund can reinvest in future Stronghold bonds or deploy to other investments.
Value proposition
Stronghold believes this solution supplies the best risk-adjusted return currently available in the industry and at far less cost and risk than alternative investments in private equity or hedge funds. The solution can operate at a scale relevant to the need.
ERISA Compliance
Union pension funds represent a special case. The innovations and proprietary financing solution described herein enables Unions and Union Pension Funds to deploy capital to support Union jobs and broader Union economic and political interests.
Programs have two separate transactions with the respective contractual counterparties (i) Project/acquisition and (ii) Union favored/selected investment.
No privity of contract exists between these two contracted transactions.