Liability Driven Investment

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Liability Driven Investing (LDI) is a risk management discipline that puts the pension plan’s liability cashflow stream at the heart of its investment strategy.

Our risk management process for Defined Benefit (DB) pension plans is centered on a strategic discussion with the plan sponsor and its investment advisor(s) about the plan’s long term objectives. We then assess the plan’s balance sheet risks with a view towards understanding and hedging the unrewarded risks embedded in the plan’s liabilities, before establishing the level of rewarded risk in its asset allocation. The overall investment solution is a function of several parameters including, amongst others, the plan’s funding level, its proportion of active members, its regulatory funding requirements, and the effect of the plan’s asset allocation on its going-concern discount factor.

Our LDI solutions can also incorporate additional de-risking strategies such as:

  • Hibernation portfolios
  • Insurance-based Pension Risk Transfer solutions
  • Longevity risk hedging

If a Pension Risk Transfer is the DB plan’s long term objective, our investment solutions could progressively adopt an asset portfolio that reflects the insurer’s hedge profile. This strategy, combined with a transfer-in-kind of the portfolio, can minimize both market risks and transfer costs as the sponsor transfers its plan from an LDI strategy with us to a Pension Risk Transfer with the insurer.

Past performance is not a guide to future performance.

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