Volatility pushes increase in LDI strategy
uptake
18 November 2009
Adoption of liability driven investment
(LDI) strategies has more than doubled across the globe, with the Netherlands
taking the top spot, finds SEI.
In a quick poll by the fiduciary management provider, 54 per cent of the
organisations questioned have implemented LDI strategies in their portfolios,
with the Dutch market reporting a 94 per cent uptake, and the UK at 50
per cent.
SEI said the figures reflect an increase in LDI’s popularity over
the last three years from a global average perspective. Attitudes towards
LDI were also found to have changed over the last three years, with 70
per cent across the globe admitting that the past year’s volatility
had increased the value of LDI. More than a third of participants who
already used LDI said they had implemented it within the last year.
“The market turmoil of late 2008 and early 2009 caused a significant
rise in DB pension deficits because return orientated assets generally
fell in value and interest rates hit new lows,” commented Charles
Marandu, director of European advice for SEI’s institutional group.
“As a result, many pension funds have increased their interest in
and adoption of LDI strategies. It is our belief that the Netherlands
has led the charge in this area because of a combination of legislation
and progressive thinking by those responsible for running pension funds.
The high take-up of Fiduciary Management in the Netherlands has clearly
led to a better appreciation by Dutch pension scheme decision makers of
the potential value of a liability driven approach. It can be argued that
by comparing credit crunch experiences with schemes in the Netherlands,
many UK pension scheme decision makers are coming to the same conclusion
– that improved governance can lead to better outcomes.”
The survey, which formed part of SEI’s Third Annual Liability Drive
Investing Poll, also found that not many participants are moving away
from LDI strategies, with 90 per cent of those who do not currently employ
an LDI approach never having done so in the past.
In 2007, 43 per cent of Netherlands funds were using LDI, which rose to
61 per cent in 2008.
150 pension executives who oversee pensions in Canada, the Netherlands,
the UK and the US participated in the global poll.
