Optimizing LDI Strategies
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, LGIM America 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:
- How to tailor funding status objectives to their plan’s goals.
- How volatility drag affects funded status returns, and how cash outflows from benefit payments exacerbate volatility drag.
- How using leverage and a more active LDI investing approach can add value to their asset allocation strategy.
Our total plan-level approach to pension portfolio decision-making can help address these considerations and generate better potential outcomes.
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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.
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