Look for growth in liability-driven investments (LDI), according to new research from Willis Towers Watson (WTW).
According to WTW, pension risk has increased slightly from last year, asset allocation has an effect on that risk, and the allocation of pension assets to fixed-income investments can be part of an LDI strategy. “LDI strategies typically use fixed-income assets as a hedge against the downside risk of lower interest rate scenarios, which drive up plan obligations,” says WTW in a release about the report.
WTW said that companies with a lower level of pension risk that allocated 50% of more of their assets to fixed-income investments support the presumption that their plan sponsors were successfully following an LDI strategy.
Michael A. Moran, a pension strategist at the New York office of Goldman Sachs Asset Management Inc. told Pensions & Investments Online that he expects more plans to build their LDI portfolios as funded levels rise.
Moran also noted that his firm is engaged in a growing number of conversations with clients about LDI. WTW PLC Senior Consulting Actuary Michael A. Archer validated Moran’s expectation as well, telling P&I that LDI are among the strategies that are performing well for DB plans.
WTW says that based on data from this year so far, “plans using an LDI strategy will likely fare much better, as long bond returns have been strong so far in 2016, which should mitigate the negative impact of falling interest rates.”
According to WTW, pension risk has increased slightly from last year, asset allocation has an effect on that risk, and the allocation of pension assets to fixed-income investments can be part of an LDI strategy. “LDI strategies typically use fixed-income assets as a hedge against the downside risk of lower interest rate scenarios, which drive up plan obligations,” says WTW in a release about the report.
WTW said that companies with a lower level of pension risk that allocated 50% of more of their assets to fixed-income investments support the presumption that their plan sponsors were successfully following an LDI strategy.
Michael A. Moran, a pension strategist at the New York office of Goldman Sachs Asset Management Inc. told Pensions & Investments Online that he expects more plans to build their LDI portfolios as funded levels rise.
Moran also noted that his firm is engaged in a growing number of conversations with clients about LDI. WTW PLC Senior Consulting Actuary Michael A. Archer validated Moran’s expectation as well, telling P&I that LDI are among the strategies that are performing well for DB plans.
WTW says that based on data from this year so far, “plans using an LDI strategy will likely fare much better, as long bond returns have been strong so far in 2016, which should mitigate the negative impact of falling interest rates.”
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