Insights

Introducing our new publication

Our Investment Outlook publication includes asset class and thematic commentary from various investment leaders over the last quarter, as well as their forecasts surrounding the financial markets.

Investment Outlook

We devote our first issue to cross-cutting factors in the current economic environment. Despite widespread anticipation of recession, businesses show no signs of defensiveness, consumer spending remains strong and labor demand remains high. The possibility remains that the Fed may have to raise interest rates further to bring inflation under control.

PDF file: Read the newsleter PDF size: 933 KB

Our full publication list

Whitepapers

PDF file: Although there are challenges, we believe there should be strong consideration for the inclusion of private placements in a long-term investor’s strategic asset allocation. PDF size: 167 KB

PDF file: Current events are an important reminder to all institutional investors that a well-thought-out investment plan is the best way to navigate volatile times. We finalize this series with a third publication addressing actions public pension plans can consider in preparation for, or during, volatile markets. PDF size: 138 KB

PDF file: As plan sponsors continue their journey with Liability-Driven Investing (LDI), they can better realize their funded status objectives and outcomes by refining their approach to asset allocation decisions. Rather than considering allocations for return-seeking assets and a liability-hedging portfolio independently, they can adopt a comprehensive strategy for allocating all plan assets directly alongside liabilities. For years, LGIMA has worked with clients to tailor funded status objectives to the specifics of their plan. This experience has helped us analyze optimization techniques that can help all plans manage funded status in the context of an LDI framework. Even plan sponsors that have adopted an asset-liability lens must consider several key issues, including: PDF size: 659 KB

PDF file: In this piece, we explain why plans should anticipate these events while providing concise answers and illustrations to some client questions regarding the navigation of equity market drawdowns. PDF size: 153 KB

PDF file: Volatile markets and recent equity market drawdowns highlight the long-term effects that short-term dislocations can create. For pension plans, ensuring plan participants receive their scheduled payments can prove difficult in volatile markets, depending on their funding situation and where these payments are sourced. In some cases, plans become forced sellers of illiquid assets, “locking-in” a loss and extending the time until achieving a sustainable funding level. PDF size: 230 KB

PDF file: As an experienced asset allocator, we at LGIMA believe the right combination of approaches, highlighted in the paper, can help public plans reduce the impact of adverse market conditions, meet their obligations and achieve growth in a sustainable and manageable way. PDF size: 261 KB

PDF file: During times of high volatility and uncertain market conviction, plans of all sizes look to assess their portfolios, weighing the important risk/return trade-offs inherent in their asset allocation. Corporate defined benefit plans not only have to weigh the decisions in the context of asset selection, they also have to understand how movements in plan liabilities could impact their ability to pay future obligations. PDF size: 705 KB

PDF file: As the COVID-19 virus spreads in the U.S and abroad, governments and central banks have taken drastic actions to keep the economy afloat and prevent further spreading of the disease. At the time of this writing, 95% of individuals in the United States and a similar amount of GDP were under a “stay at home” order. PDF size: 552 KB

PDF file: Today’s corporate pension plans use a variety of approaches to set their discount rates: yield curves, hypothetical bond portfolios and various subsets of the universe. Despite the variation, they all use the AA universe of bonds, consistent with decades-old guidance from the SEC. PDF size: 498 KB

PDF file: Throughout this paper we compare and contrast a “traditional plan” to a “cash balance plan.” The employee benefit under a traditional plan is typically based on a mathematical formula that accounts for the number of years of service and the employee’s salary (or a fixed dollar per year of service) at retirement. The employer is then responsible for delivering the defined benefit pension payments, usually in terms of monthly income, upon retirement. PDF size: 689 KB

PDF file: All defined benefit pension plan sponsors face liability-based challenges. This includes public pension plans. The key is designing financial management policies (funding, investment, and cost management) that recognize how liabilities grow and fluctuate over time. PDF size: 114 KB

PDF file: All pension plan sponsors use financial management policies (including funding, investment and cost/liability management) to manage liability-based challenges over time.2 They must decide how much money to contribute into the plan each year, how to invest the money and how to measure the liability growth and cost of the plan over time. PDF size: 311 KB

PDF file: Our framework is not intended to suggest that any changes need to be made to public plan financial management, but instead puts forth a practical way of considering how various financial policies fit together. Having a complete picture of the implications and interactions of all the financing decisions can facilitate informed financial management decisions and highlight potential opportunities to achieve improved outcomes. PDF size: 202 KB

PDF file: Pension financial management of public funds can clearly be challenging. Fortunately, there are straightforward ways of measuring the underlying economics of plans, monitoring risks and financial policies, and identifying opportunities to achieve better outcomes. The framework presented in this paper offers one approach to supplementing the financial management process for public pension plans. PDF size: 1554 KB

PDF file: Whitepaper PDF size: 1888 KB

PDF file: This paper is the first in a series of four pieces that will examine the basic characteristics of CITs, due diligence considerations for evaluating an index CIT investment, LGIMA’s best practices for passive CIT structures, and investment methods inside our index CITs. PDF size: 157 KB

PDF file: This paper will examine the primary areas plan sponsors should consider when evaluating an index CIT investment structure, while discussing some of the potential differences among providers. PDF size: 184 KB

PDF file: igher standard in the three core principals of Governance, Transparency, and Flexibility. Based on these principles, we have implemented five key features into our index fund program that uses Collective Investment Trust (CIT) structures—the increasingly preferred investment vehicle of DC plan fiduciaries and their consultants. PDF size: 118 KB

PDF file: All index investing starts with a simple goal: To neatly define and divide a portfolio’s target exposure into a finite number of securities—own 4.1% of security A, own 3.2% of Security B, and so on. With an objective as straightforward as this, one might think there is no need for index fund managers to put energy towards research, no room for clever insights, and no place for any active decisions about managing the portfolio’s exposures. PDF size: 328 KB

PDF file: This paper discusses pension discount rates, how current practice has evolved, where it can be improved, and outlines a more advantageous approach for the industry to move toward in the future. PDF size: 1309 KB

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PDF file: In this Income 101 study session, we introduce the concept of an Efficient Drawdown Portfolio. The Efficient Drawdown Portfolio frames the development of a drawdown strategy as a straightforward choice between the desired level of income and the potential risk to that income. PDF size: 535 KB

PDF file: Dynamic drawdown combined with a drawdown portfolio helps to address one of the key retirement concerns. PDF size: 301 KB

file: “Retirement” is a relatively new concept. Not so long ago, leisure-filled, post-employment days simply did not exist.

PDF file: How dividing retirement into distinct segments can ease the planning process PDF size: 111 KB

Environmental, Social and Governance (ESG)

PDF file: Our report details the changes since 2021 and outlines LGIM’s approach to climate stewardship. PDF size: 17588 KB

PDF file: Over the course of 2021, the pandemic continued to highlight critical environmental, social and governance (ESG) challenges. PDF size: 14046 KB

PDF file: We are continually evolving our capability to meet these challenges, providing climate solutions across asset classes and investment strategies for our clients. PDF size: 1563 KB

PDF file: Mergers and acquisitions (M&A) are a key feature of capital markets that provides companies with the opportunity to enhance and generate optimal returns to investors. PDF size: 126 KB

PDF file: Throughout history, humans have risen to address challenges to the health and 􀁗􀁅􀁊􀁉􀁘􀁝􀀄􀁓􀁊􀀄􀁘􀁌􀁉􀁍􀁖􀀄􀁇􀁓􀁑􀁑􀁙􀁒􀁍􀁘􀁍􀁉􀁗􀀒􀀄􀀷􀁇􀁍􀁉􀁒􀁘􀁍􀆼􀁇􀀄􀁇􀁓􀁒􀁗􀁉􀁒􀁗􀁙􀁗􀀄􀁌􀁅􀁗􀀄􀁇􀁉􀁖􀁘􀁅􀁍􀁒􀁐􀁝􀀄􀁓􀁙􀁘􀁔􀁅􀁇􀁉􀁈􀀄􀁔􀁓􀁐􀁍􀁘􀁍􀁇􀁅􀁐􀀄 􀁇􀁓􀁒􀁗􀁉􀁒􀁗􀁙􀁗􀀄􀁓􀁒􀀄􀁌􀁓􀁛􀀄􀁘􀁓􀀄􀁘􀁅􀁇􀁏􀁐􀁉􀀄􀁘􀁌􀁉􀀄􀁗􀁍􀁋􀁒􀁍􀆼􀁇􀁅􀁒􀁘􀀄􀁔􀁌􀁝􀁗􀁍􀁇􀁅􀁐􀀄􀁅􀁒􀁈􀀄􀁉􀁇􀁓􀁒􀁓􀁑􀁍􀁇􀀄􀁍􀁑􀁔􀁅􀁇􀁘􀁗􀀄􀁓􀁊􀀄􀁇􀁐􀁍􀁑􀁅􀁘􀁉􀀄 􀁇􀁌􀁅􀁒􀁋􀁉􀀐􀀄􀁆􀁙􀁘􀀄􀁘􀁌􀁉􀀄􀁋􀁐􀁓􀁆􀁅􀁐􀀄􀁔􀁓􀁐􀁍􀁘􀁍􀁇􀁅􀁐􀀄􀁛􀁍􀁐􀁐􀀄􀁊􀁓􀁖􀀄􀁍􀁒􀁇􀁖􀁉􀁅􀁗􀁉􀁈􀀄􀁖􀁉􀁋􀁙􀁐􀁅􀁘􀁍􀁓􀁒􀀄􀁍􀁗􀀄􀁗􀁘􀁖􀁉􀁒􀁋􀁘􀁌􀁉􀁒􀁍􀁒􀁋􀀒􀀄 Therefore, it is our goal at LGIM to understand how regulation will manifest itself and 􀁍􀁑􀁔􀁅􀁇􀁘􀀄􀁓􀁙􀁖􀀄􀁇􀁐􀁍􀁉􀁒􀁘􀁗􀆅􀀄􀁅􀁗􀁗􀁉􀁘􀁗􀀒􀀄􀀻􀁌􀁍􀁐􀁉􀀄􀁍􀁘􀀄􀁍􀁗􀀄􀁚􀁉􀁖􀁝􀀄􀁈􀁍􀆾􀁇􀁙􀁐􀁘􀀄􀁘􀁓􀀄􀁈􀁉􀁘􀁉􀁖􀁑􀁍􀁒􀁉􀀄􀁘􀁌􀁉􀀄􀁉􀁜􀁅􀁇􀁘􀀄􀁖􀁉􀁋􀁙􀁐􀁅􀁘􀁓􀁖􀁝􀀄 􀁑􀁉􀁇􀁌􀁅􀁒􀁍􀁗􀁑􀁗􀀄􀁅􀁒􀁈􀀄􀁘􀁍􀁑􀁍􀁒􀁋􀀐􀀄􀁍􀁘􀀄􀁍􀁗􀀄􀁖􀁉􀁅􀁗􀁓􀁒􀁅􀁆􀁐􀁉􀀄􀁘􀁓􀀄􀁅􀁗􀁗􀁙􀁑􀁉􀀄􀁘􀁌􀁅􀁘􀀄􀁇􀁓􀁑􀁔􀁅􀁒􀁍􀁉􀁗􀀄􀁘􀁌􀁅􀁘􀀄􀁅􀁖􀁉􀀄􀁑􀁓􀁖􀁉􀀄 􀁅􀁐􀁍􀁋􀁒􀁉􀁈􀀄􀁛􀁍􀁘􀁌􀀄􀁘􀁌􀁉􀀄􀁘􀁖􀁅􀁎􀁉􀁇􀁘􀁓􀁖􀁝􀀄􀁓􀁊􀀄􀁘􀁌􀁉􀁗􀁉􀀄􀁖􀁉􀁋􀁙􀁐􀁅􀁘􀁍􀁓􀁒􀁗􀀄􀁊􀁅􀁇􀁉􀀄􀁐􀁓􀁛􀁉􀁖􀀄􀁖􀁍􀁗􀁏􀀄􀁅􀁒􀁈􀀄􀁌􀁍􀁋􀁌􀁉􀁖􀀄􀁓􀁔􀁔􀁓􀁖􀁘􀁙􀁒􀁍􀁘􀁝􀀄 than those who are not. PDF size: 3153 KB

PDF file: In 2019, LGIM ran a targeted engagement campaign focused on social, governance and transparency issues at large companies with poor ESG scores. After giving them an opportunity to improve their scores, we take a quantitative look at the results in this paper to identify whether progress has been made. PDF size: 25335 KB

PDF file: . We fully support the objectives of the SDGs, but for the aforementioned reasons we do not claim to be managing assets directly according to them. Instead, many of the SDGs’ principles and themes are embedded in our approach to responsible investment. We believe there are four specific ways in which our efforts can be linked to the principles of the SDGs. PDF size: 1515 KB

PDF file: In this article on how we integrate ESG criteria into portfolios, we discuss different approaches to responsible investing within index strategies – and look at what the future may have in store for this important field. PDF size: 1409 KB

PDF file: Our expectation is that the proportion of women on the board and in executive teams at companies should be 30%, at a minimum. We’re looking for critical mass, not tokenism, where contributions from a minority group are valued in their own right. PDF size: 182 KB

PDF file: Investors must demand ethnic diversity in the companies they own. This is what we at LGIM plan to do on this essential topic. PDF size: 8694 KB

PDF file: As part of our corporate engagement activity, we have often set ambitious diversity targets for companies as well as standards for inclusion. Anyone who has ever worked in a team knows the importance of a strong culture. Developing a strong culture is both a key part of these efforts and a means for us to assess the success of a company. PDF size: 631 KB

PDF file: Ongoing dialogue with companies is a fundamental aspect of LGIM’s commitment to responsible investment. Engagement will be triggered in a variety of ways, such as a regular catch-ups; analysis of responsible investment themes and voting issues; general knowledge of the company; or a media report. PDF size: 1433 KB

PDF file: This document sets out the sustainability policy for LGIM(H) PDF size: 220 KB

PDF file: Through the implementation of this controversial weapons policy, Legal & General Investment Management (Holdings) Limited (‘LGIM(H)’) and its subsidiaries will exclude from its investments those companies involved in the manufacture and production of cluster munitions, anti-personnel landmines, and biological and chemical weapons. PDF size: 786 KB

PDF file: In this guide, we set out our expectations as a long-term investor regarding what ESG information our investee-listed companies should report on, and how to communicate this information effectively to stakeholders. PDF size: 894 KB

PDF file: The scrutiny on executive pay in North America is increasing year on year. In this note, we outline our stance on the issue. PDF size: 384 KB

PDF file: The Legal & General Investment Management (LGIM) Investment Stewardship team has responsibility for engaging and voting with listed companies to safeguard and enhance our clients’ assets, and identifying and engaging on emerging governance topics. As part of this process, it is necessary to be able to take informed positions, and to be able to actively support companies, in order to obtain the best outcome for our clients. Using our scale can influence investee companies on important decisions. PDF size: 990 KB

PDF file: We believe that working to create a more inclusive and sustainable capitalist system is in the best interest of all investors. Large asset managers are in a unique position to drive this change by adopting a stewardship mindset that uses influence to benefit the economy, the environment and society as a whole. PDF size: 914 KB

PDF file: We recognize that environmental, social and governance (ESG) factors increasingly play a role in determining the performance of certain assets. An expanded set of analysis tools can help investors navigate risk and identify those companies that might succeed in a rapidly changing world. PDF size: 6270 KB

PDF file: Our Global approach and expectations with respect to topics we believe are essential for an efficient governance framework. PDF size: 321 KB

PDF file: Our Japanese approach and expectations with respect to topics we believe are essential for an efficient governance framework. PDF size: 329 KB

PDF file: Our UK approach and expectations with respect to topics we believe are essential for an efficient governance framework. PDF size: 355 KB

PDF file: Our North American approach and expectations with respect to topics we believe are essential for an efficient governance framework. PDF size: 342 KB

Viewpoints

PDF file: It’s difficult to ignore the growing call to action to address the climate crisis, which some refer to as our generation’s challenge. PDF size: 480 KB

PDF file: We discuss preparing for a plan termination by constructing a PRT-ready portfolio. PDF size: 518 KB

PDF file: In a conversation with Linsey Schoemehl Payne, Nichole Roman-Bhatty and Brian Beargie, we discuss timely topics relating to ESG for institutional investors. Furthermore, we explore the methods and considerations for incorporating ESG factors into the fixed income investment process. PDF size: 536 KB

PDF file: The use of overlays is known to vary significantly across pension plan sponsors. With a better understanding of the value an overlay can add when combined with thoughtful risk management, overlay adoption can prove a powerful tool. Overlays can significantly reduce certain risks for plan sponsors and may allow for more efficient capital allocation with or without introducing leverage into the plan. By implementing an overlay as part of a broader strategy, plan sponsors can potentially solve some of their most pressing portfolio management problems: liquidity, cash drag, transaction costs and tracking error. In a conversation with Joaquin Lujan and Neil Olympio, we explore the benefits and considerations of adopting an overlay, specifically how they can help achieve a plan’s unique objectives. PDF size: 516 KB

PDF file: In our conversation with Ben and Ciaran, we discuss the evolution of LDI and custom strategies and specifically, how they pertain to managing a cash balance plan. PDF size: 498 KB

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Views and opinions expressed herein are as of the date published and may change based on market and other conditions. The material contained here is confidential and intended for the person to whom it has been delivered and may not be reproduced or distributed. The material is for informational purposes only and is not intended as a solicitation to buy or sell any securities or other financial instrument or to provide any investment advice or service. Legal & General Investment Management America, Inc. does not guarantee the timeliness, sequence, accuracy or completeness of information included. Past performance should not be taken as an indication or guarantee of future performance and no representation, express or implied, is made regarding future performance.

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