The use of liability-driven investment strategies — where a plan’s assets are matched more closely to its future liabilities — has more than tripled in the past five years, according to a recent survey of pension executives by SEI.
The survey of 100 pension executives from the United States, Canada, Netherlands and the U.K. reveals that 63% now use an LDI investment approach, up from only 20% in 2007.
“The ongoing funded status volatility of pensions has placed increased pressure on organizations to make investment decisions that match the assets to the plan’s liabilities,” said Jonathan Waite, director, investment management advice and chief actuary of SEI’s institutional group. “The volatility has also created a significant need for active LDI and de-risking strategies that can regularly monitor market changes and key trigger points.”
The primary benchmark of successful pension management has changed significantly over the last four years to “improved funded status” in this year’s poll from “absolute return of portfolio” in 2007.
In terms of asset allocation, long-duration bonds continue to be a popular strategy (cited by 74% of respondents). Short-duration cash management is also commonly used, with 40% using it this year. Newer LDI products, such as emerging market debt, were used by 37% while interest-rate derivatives were used by 26%.
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