09/12/2011
By Ilonka Oudenampsen
Liability-driven investing (LDI) strategies are increasingly popular among pension funds, the annual SEI Global Quick Poll has found. Of the surveyed pension executives, 63 per cent employ an LDI strategy, the highest outcome in the poll’s five year history, compared to 20 per cent in 2007.
The poll included 100 pension executives from the United States, Canada, the Netherlands and the United Kingdom, none of which were institutional clients of SEI.
The company found that 46 per cent define LDI as “matching duration of assets to duration of liabilities”, while the main reason to implement an LDI strategy is “controlling the volatility of funded status”. The primary benchmark of successful pension management has moved from “absolute return of portfolio” in 2007 to “improved funded status” in 2011.
In terms of asset allocation, 74 per cent of respondents use long-duration bonds, as bonds and liability values are similarly sensitive to interest rates. Short-duration cash management is used by 40 per cent, while newer LDI products like emerging market debt are chosen by 37 per cent and 26 per cent go for investments in interest-rate derivatives.
“The ongoing funded status volatility of pensions has placed increased pressure on organisations to make investment decisions that match the assets to the plan’s liabilities,” said Jonathan Waite, director, Investment Management Advice and chief actuary of SEI’s Institutional Group. “The volatility has also created a significant need for active LDI and de-risking strategies that can regularly monitor market changes and key trigger points.”
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The number of pension plans adopting liability driven investing (LDI) strategies has remained steady over the past year, according to the annual LDI Global Quick poll from SEI
