25 min read

Liability Disinterested Investing

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Investors concerned about the stability of equity-bond correlations can implement several approaches to mitigate or avoid any permanent loss of capital during a market drawdown when liquidity is needed. Depending on an institution’s specific objectives and preferences, we could implement one or a combination of:

  • Cash flow matching a portion of their fixed income assets to expected spending needs.
  • Creatively managing credit risk and interest rate duration risk to better balance total returns with diversifying or hedging benefits.
  • Utilizing equity option structures to protect against outcomes where diversification within asset allocation may not sufficiently reduce risk.

It is not only the hard lessons of 2022 that may make these approaches appealing, but also instability in relationships underpinning optimized portfolios, the trend toward higher allocations to illiquid assets and the conundrum of maintaining a long-term view in the face of short-term disruptions. We outline our rationale and various implementations that we believe can help institutional investors meet the demands of their sponsoring organizations while potentially minimizing any trade-offs against long-term expectations for market risks and rewards

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Rethinking Overlay Manager Diversification

Portfolio Solutions - LDI

At LGIM America, we believe overlay manager diversification is likely inefficient and creates uncompensated risks. Using multiple overlay managers can result in increased costs, collateral inefficiency and higher governance burdens.

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.