.JPG) | Regulatory changes have forced companies to recognise scheme liabilities or surpluses in their balance sheets. Large funding deficits have been revealed, focussing attention on how assets are managed against bond or equity benchmarks. Ultimately however, the objective is to ensure that future cash flow liabilities (payment obligations) can be met. Liability Driven Investment (LDI) is an immensely important development for the pension fund industry and will fundamentally change the way funds operate. F&C’s LDI solution is structured to meet the needs of pension funds in the changing market environment. The objective of our comprehensive process, led by our experienced Asset Liability Management Team, is to assemble a portfolio of assets for a pension fund that that more closely replicates the characteristics of the scheme’s liability profile. |
LDI is a vitally important part of Asset & Liability Management (ALM). Most funds have taken ALM advice for many years to help them understand the risks taken between the fund assets and the liabilities. LDI is simply the process of hedging interest and inflation risks to ensure that these forms of unrewarded risk can be removed from the investment equation. ALM remains vital to the process as it determines the appropriate amount of risk to take and the allocation of the risk budget. If ALM is underpinned by an effective LDI approach, it becomes possible to reduce risk for the same expected return or to increase return for the same level of risk.
See below for more LDI literature: