Cash Flow-Driven Investing

Cash flow-driven investing (CDI)

Cash flow-driven investing is an investment approach focused on delivering a consistent and reliable stream of income in an effort to meet the near-term obligations of an organization.

Cash flow-driven investing is commonly presented as an investment solution for corporate defined benefit plans that make regular benefit payments, but any organization with regular cash flow requirements could potentially benefit from a liability-aware investment approach.

Cash flow-driven investing can be utilized by a wide variety of investor types because it is highly customized. Each CDI portfolio can be tailored to an organization's specific circumstances—designing a customized asset mix, duration profile, and overall time horizon that seeks to meet the unique needs of each program.

Potential benefits of a cash flow-driven investment solution

  • Obligations are funded with pre-defined assets. 
    With an investment strategy geared toward matching or exceeding more immediate obligations, programs may be able to avoid the need to raise funds sporadically and at inopportune times, to meet near-term cash flow needs.
  • Funding status and asset growth are not hindered by frequent redemptions.
    Assets are invested with a purpose. By using a cash flow-driven investment strategy to support short-term obligations, other program assets may be available to improve or maintain a programs funding.
  • Investment committees are able to focus on the strategic mission and objectives of the organization.
    The Mercer Top 10 Defined Benefit Areas of Focus for 2019 states 55% of plan sponsors struggle to find the time and expertise to oversee the investment strategy of their plan.
  • More efficient deployment of new contributions.
    With current cash flow needs matched, new contributions can be invested to help support the long-term objectives and future liabilities.

Strategy considerations

We believe four key factors will impact the success of a cash flow-driven investment solution.

  1. Multi-sector opportunity set with an emphasis on credit.
  2. Dynamic investment framework - consistently applied with a focus on risk management.
  3. Precise matching of assets to liabilities.
  4. Highly customized, client-dependent approach developed with close collaboration.

Explore your options with a trusted partner

Aegon AM US specializes in multi-sector, fixed income investing, an expertise built over decades of working closely with insurance company clients. Having evolved from the customized benchmarking and asset-liability management approach used by life insurance companies for decades, we have adapted skills and developed infrastructure to match asset cash flows with anticipated liabilities. Our highly customized approach to finding relative value at each part of the yield curve is born from the strategy life insurance companies utilize to match their highly complex, unique liability streams.

We combine the full complement of our deep, fundamental, bottom-up research culture, our global top-down house view process, and our risk management systems, to provide customized solutions for all types of clients.