Are there still areas of fixed income that provide value?

Joe Abrams: It is quite difficult to say where there is a pocket of specific value out there at the moment. I guess you have to talk about timeframes; in the short term perhaps European credit might be on a bit of a run. I don’t know how far that will go.

If I had to pick one specific area of the market I like over the longer term, I guess BB/B-rated credit risk with three to five years maturity.

I think that is a fairly sweet spot in the market, because if yields rise it is shorter maturity and you get to reinvest at a higher rate. If spreads fall, it is a winner as well.

Through private debt, pension schemes can harness illiquidity premium and complexity premium; I think pension schemes are in a good position to be able to do that but, certainly, it is not at any price. You have to be cognisant of things like locking your money away. There is an opportunity cost for that.

Simon Cohen: Some consultancies are coming to talk to us about private debt, although it sounds like the best years may have happened already, a year or two ago, so it is almost at the end of the cycle.

But it is reaching pension schemes now in terms of the potential to take advantage of the fact there are capital constraints in place and lending is not happening. Schemes can pick up a premium for being happy to lend out to these SMEs, for example.

Edward Farley: Credit spreads still definitely more than compensate you for any potential default risk. They are historically wide if you take out what has happened in the recent credit crisis.

And you can use them whether you are looking at high yield or the BB space in the front end of the curve, or if you go much more long-dated and are looking to use them to reduce interest rate risk while harvesting a little bit of credit spread.

Chris Redmond: I will just lay down a marker to say that we probably disagree slightly with a positive view on investment-grade credit.

Investment grade is at best fair value, but probably still a bit overpriced given the fragility of the financial system and the fact that even those countries that have experienced better economic performance are probably nearing the end of their credit cycle, and we should expect to see corporate bond rates pick up materially. Obviously energy is a poster child, but I think outside of that default rates will pick up.

I think the private debt space is interesting. There has been a real premium for being the first mover. We have positioned this with our clients as an opportunity to play the role of a good bank.

Banks were historically very good at lending. They did it in a very controlled way most of the time and were able to earn very handsome rewards for doing that.

Figuring out which businesses they are exiting and being an early mover and positioning yourselves as an institutional provider of capital I think is a huge opportunity.

That was direct lending three or four years ago. It is probably not now given we have seen a huge growth in the number of institutional players in that market.

However, there is still an opportunity, just in other areas. You have to work a little bit harder, you have to look for much more niche segments, but there is a really interesting prospect kicking off those non-core businesses that banks used to lend to.

John Walbaum: I am going to say all of the above, because I think pension schemes are very like insurers in many ways now. It is all about cash flows, and the attraction for me of many of the assets that the other panellists have been mentioning is they throw off contractual cash flows.

At any given time there will be some of those cash flows that look more attractive than others; that is partly a judgment call, partly a market call and partly it is just capturing opportunities, as you say.

But if we focus more on the contractual cash flow nature of assets, and we are prepared to ride out the mark-to-market, then the key is how do you manage defaults?

Think carefully about the default risk when you are entering these assets, whatever it might happen to be – a real estate-backed debt, some sort of syndicated loan, or whether you are directly lending to SMEs.

Think about the default risk and have a partner you are working with that can help you manage that risk and, crucially, get defaults-managed recovery.

We have been through one of the most benign periods for defaults that probably any of us can remember. We will get defaults; the secret is being able to manage through them to make sure your overall recovery rate is high as well. If you can satisfy yourself about that, then the contractual cash flows are hugely positive because it helps, on the other side, where you do not want to be a forced seller of an asset.

If you can do that, you can meet cash flows without having to sell something else. It buys you time. So I think the focus on contractual cash flows is not a fad, it is due to the maturity of pension schemes and I think it is here to stay.

Abrams: I would agree with that, but further to that I would say the opportunity to diversify those contractual cash flows is also a useful thing to have.

So we start seeing the different levels of strategies out there that might access things like commercial real estate loans and bits of trade finance.