Learn About The Options Of Liability Driven Investing
Liability Driven Investing (LDI) has been a topic of articles and ongoing discussion within pension committee meetings for several years. There has been a lot of interest but a reluctance to execute until the pension plan is closer to being fully funded. In addition, plan sponsors are still not comfortable with the change in investment strategy that is at the core of LDI.
The main challenge for plan sponsors seems to be moving beyond the asset-only focus and default 60/40 equities and bonds mix, to an investment strategy that considers the liabilities of the plan, as well as the shift from the objective of maximizing returns to stabilizing the funded position of the plan.
The 60/40 asset mix has resulted in double digit returns for defined benefit (DB) pension plans over the last several years and despite a decline in the interest rates (used to value the liabilities) over the same period a majority of plans are currently in the best funded position in over a decade.
Many plan sponsors have closed their DB plans and a majority of their employees are in a defined contribution or Group RRSP arrangement and this is where their focus is. For these plan sponsors the timing is good to have a more serious discussion about the risks associated with their DB plan and consider LDI as a step towards stabilizing the current favourable funded position of the plan.
If you are interested in developing or investigating this type of investment strategy, the team at Mondelis will work with your pension committee and assist your investment manager in achieving positive results. Contact us today to learn more!