Key takeaways
- Improved funding levels in recent years have prompted schemes to de-risk, leading to increased UK credit exposure.
- The draft defined benefit funding code is also motivating schemes to increase UK credit to become less dependent on contributions.
- Whilst these measures prioritise safety, they paradoxically expose schemes to a number of hidden risks unique to UK credit markets.
- This paradox can be mitigated by adopting liquid alternative credit strategies that complement physical credit allocations.
- Allspring’s Global Credit Alternative strategy is a customisable synthetic credit strategy that uses equity index options to harvest credit risk premium.