A Lesson in Liabilities - Q2 2023
Download the full article
A Lesson in Liabilities
It is possible that the most intense phase of the banking crisis is finished. Policymakers appear to have succeeded in putting an end to deposit runs and bank failures in recent weeks by acting swiftly to provide liquidity. Nonetheless, this is no time for complacency. The risk remains that the bank crisis will smolder for months without any spectacular failures, yet gradually create grave implications for the economy and risk assets.
Additional highlights
- Pension Solutions Monitor: We estimate that pension funding ratios increased over the first quarter of 2023. Based on market movements, the average funding ratio is estimated to have increased from 98.3% to 100.3%.
- Fixed Income: We enter the second quarter underweight corporate credit, with a preference for higher quality segments of the market. Moreover, we caution that security selection will be paramount as the resilience of business models will be tested amidst a turbulent economic backdrop.
- Equities: It is impossible to get excited about the current equity market. It's also difficult to be disheartened by a 7% year-to-date return and solid macro economic fundamentals. On the other hand, equities still have their rivalry with policy tightening. Fortunately, the playing field has shifted a bit, and good defense may be easier to execute.
- Research: As we enter the most watched bank earnings season in a decade, we see challenges for smaller banks relative to the GSIFIs and super regionals. Banks will need to demonstrate liquidity, which they can do by increasing reserves, shortening the duration of securities holdings, issuing debt and increasing what they pay on deposits.
Download the full article
Read our thoughts and reflections with regards to the financial markets as well as timely topics by downloading our latest newsletter.
Additional insights
Optimizing LDI Strategies
LDI
Thanks to the adoption of LDI, plan sponsors have become much more sophisticated in their approach to managing pension liabilities in the last ten years. This increased sophistication sharpens plan sponsors’ and investment managers’ focus on funded status outcomes.
An Introduction to US Credit Private Placements
Real Assets - Private Credit
Relative to public investment grade corporate bonds, LGIM America feels the attractive premium of investment grade private placements, paired with a potential decrease in tail risk and the diversification, could have positive benefits for institutional investors.
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.
Unless otherwise stated, references herein to "LGIM", "we" and "us" are meant to capture the global conglomerate that includes Legal & General Investment Management Ltd. (a U.K. FCA authorized adviser), LGIM International Limited (a U.S. SEC registered investment adviser and U.K. FCA authorized adviser), Legal & General Investment Management America, Inc. (a U.S. SEC registered investment adviser) and Legal & General Investment Management Asia Limited (a Hong Kong SFC registered adviser). The LGIM Stewardship Team acts on behalf of all such locally authorized entities. © 2024 Legal & General Investment Management Limited. All rights reserved. No part of this publication may be re-produced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the publishers.