For professional investors only June 2017 TLAs: LDI now CDI Abhishek Srivastav – Head of UK Pensions Solutions James Waters – Client Portfolio Manager, Fixed Income For professional investors only June 2017

Where are we? Within the investment world Source: Willis Towers Watson DB Member Choice Survey 2017, The rise of pension flexibility.

Why now? Read all about it! 50% of FTSE 350 schemes, which account for approx. half of UK DB by assets, are already cash-flow negative or soon will be. Hymans Robertson “Nearly half of DB pension schemes surveyed in Mercer’s latest European Asset Allocation Survey are cash-flow-negative…the proportion of DB schemes in this situation is expected to rise to 80% within the next 10 years” Mercer European Asset Allocation Survey 2016 Cash-flow management is particularly important for mature schemes where worse than expected market conditions could have a severe impact on a scheme’s future cash-flow. TPR Annual Funding Statement (May 2017)

Surprise surprise… well known secrets GBP Millions Assets Liabilities Funding Ratio Start of period 80 100 80% Contributions & Investment Income   Pensions due 10 End of period 70 90 78% Source: Columbia Threadneedle Investments. For illustrative purposes only.

So what are we on about? Matching cash-flows Seg / PF Buy and hold approach Fixed income securities Medium term cash-flows Source: Columbia Threadneedle Investments.

What are the options? Shortfall/ Investment risk Value (£) Time Segregated Shortfall/ Investment risk Value (£) Time Source: Columbia Threadneedle Investments. For illustrative purposes only.

What are the options? Shortfall/Investment risk ? Value (£) Vintage 1 Pooled Shortfall/Investment risk ? Value (£) Vintage 1 Vintage 2 Vintage 3 Vintage 4 Vintage 5 Vintage 6 Vintage 7 Vintage 8 Vintage 9 Vintage 10 Vintage 11 Vintage 12 Vintage 13 Reinvestment risk ? Time Source: Columbia Threadneedle, Investments , For illustrative purposes only

What’s the point? To pay pensions in full and on time! Greater certainty on contribution requirements One less regulatory challenge Less volatility in financial statements Sponsor Greater certainty on cash-flows One less regulatory challenge Scope to lower funding ratio volatility Governance benefit Buyout friendly (term, premium) Scheme Member Greater certainty on pensions Greater support for freedoms and choices Source: Columbia Threadneedle Investments.

Asset allocation mix (ESG) Caution ahead Term Asset allocation mix (ESG) Structure Manager skill Infrastructure Fees

Section 2 An example

Model portfolio £100mn, with £10mn annual distribution, in a closed-ended pooled fund structure Expected Return 1.78% p.a. YTW Distribution 10% p.a. (Years 1-10) OAS 95bps Frequency Semi-annual Credit Rating A Term 10 years # of issuers 109 Duration 5.11yrs # of issues 142 Components IG, HY Structure Closed Region(s) UK Fees TBD Investment Grade (IG), High Yield (HY), Yield-to-Worst (YTW), Option Adjusted Spread (OAS) Source: Columbia Threadneedle Investments. For illustrative purposes only.

Important information For internal use and for Professional and/or Qualified Investors only (not to be used with or passed on to retail clients) Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Performance figures and other data relating to a fund or a representative account are provided for illustrative purpose only and may differ from that of other separately managed accounts due to such differences as cash flows, charges, applicable taxes, and differences in investment strategy and restrictions. Please note that the performance target may not be attained. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The mention of any specific stocks should not be taken as a recommendation to deal. The fund characteristics described above are internal guidelines (rather than limits and controls). They do not form part of the fund’s objective and policy and are subject to change without notice in the future. The research and analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This presentation and its contents are confidential and proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any form or passed on to any third party without the express written permission of Columbia Threadneedle Investments. This presentation is the property of Columbia Threadneedle Investments and must be returned upon request. This presentation is not investment, legal, tax, or accounting advice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating an investment with Columbia Threadneedle Investments. Issued by Threadneedle Asset Management Limited, registered in England and Wales, No. 573204. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. For TIF Funds