Liability-Driven Investing

Conning's approach to liability-driven investing (LDI) is uniquely focused on better pension risk management. We believe a LDI strategy should be aimed at minimizing a pension plan’s unrewarded or poorly rewarded risk.

A well designed LDI strategy seeks to address two important considerations for pension plan sponsors:

  • Meeting benefit obligations as and when they fall due: assets must generate the returns necessary to meet benefit requirements.

  • LDI hedging assets moving in-line with liability values as interest rates and credit spreads vary over time.

In addition to standard long-duration strategies, we manage assets relative to benchmarks that are customized to meet the unique requirements of each pension plan. These benchmarks reflect the term structure and credit spread exposure of a plan’s liabilities.

 

Our Philosophy

The cornerstone of Conning's LDI philosophy is disciplined pensions risk management. We believe that a robust LDI strategy should be designed to minimize the downside risk associated with a plan's funded status.

Every plan should have a clear understanding of its risk appetite in order to develop a risk budget that reflects the considerations of a specific plan’s various stakeholders, anticipated contribution amounts and where the plan may be in its de-risking glidepath. As a result, we believe each plan requires a customized solution that addresses its unique needs.

A plan’s investment benchmark can therefore be structured to closely reference its liability characteristics and minimize underlying downside risk.

 

Why LDI?

  • LDI may minimize the asset-liability mis-match risk, resulting in a higher probability of meeting members' benefit payments in the future.

  • It may help plan sponsors manage their contribution budget as the risk of making unexpected and significant contributions may be reduced considerably.

  • The governance burden on plan sponsors is reduced so that they may focus more time on their core business operations.

  • The potential for generating a “trapped surplus” amount of assets well in excess of the liability value in the pension plan, which is exposed to a punitive tax rate, is reduced.

 

Our Approach

  • We manage long duration strategies to highly customized solutions that address our clients' specific liability profiles and risk appetite. 

  • We develop interim LDI strategies at different phases of a plan’s de-risking glidepath that ultimately evolve into a Target Endgame LDI Strategy.

  • Our goal is to reduce a plan’s downside risk as it marches towards this Target Endgame LDI Strategy.

  • Our award-winning models are used to test the effectiveness of various LDI strategies.


Our LDI Strategies

  • Long-duration strategies, including government and corporate credit.

  • Customized liability-driven benchmark strategies.

  • Completion management strategies that include customized credit completion portfolios as well as treasury and interest rate derivative instruments.

  • Liability-driven strategies within the de-risking glidepath framework.

  • Strategies that facilitate movement between glidepath phases and periodic rebalancing to a strategic benchmark.

  • Multi-asset class strategies for growth portfolios that supplement our LDI hedging strategies.

 

Contact us to learn more about our LDI strategies.

 

 

Insurance companies and pension plans are increasingly seeking customized investment solutions that focus on their specific goals and objectives. Whether to strengthen the financial outcome from an investment perspective or to enhance risk management, Conning is well-equipped to deliver investment solutions that cater to clients’ needs.