Sixty Second Summary
Go with the (cash)flow
04 Sep 2018 - Estimated reading time: 60 seconds
Cashflow negativity: What is it? How big a risk is it really in the LGPS? And what does it mean for my investment strategy? In the following article we set out a number of thoughts on this important, but often misunderstood, topic.
What is cashflow negativity?
Simply put, cashflow negativity is when benefits to members – outflow - is greater than cash coming in. Inconsistency can arise when it comes to defining inflow e.g. is it contributions only, or does it include the income generated from assets?
Why does focusing on cashflow matter?
The overriding requirement of all pension funds is to pay benefits to members. Indeed most LGPS funds have “the ability to pay cashflows as they fall due” as a main objective. To meet this objective, Committees must understand how their Fund’s cashflow position is likely to evolve over the longer term, and ensure it takes sufficient priority at Committee meetings.