BNY Asset Management Introduces Liability-driven Investment Solution

August 10, 2006 ( - Bank of New York Asset Management has introduced a liability-driven investment solution with three options to match the funding level of a defined benefit plan.

Total Asset Liability Solutions (ToTALS) helps DB plan sponsors match their assets to their long-term liabilities. According to the announcement, the three approaches sponsors can choose from include:

  • Level One – uses cash flow immunization techniques to minimize interest rate risk, which can be particularly beneficial to frozen and over-funded plans.
  • Level Two – involves active, long duration management, using a combination of cash and futures to extend the duration of a plan’s portfolio.
  • Level Three – consists of a customized derivative-based solution, using fixed income derivative strategies, such as swaps and swaptions, to actively manage the interest rate risk caused by the duration gap between assets and liabilities.

“BNY ToTALS creates a road map for pension plans to hedge liability risk using traditional strategies as well as new derivative-based solutions, depending on the plan’s funded status,” Margo Cook, executive vice president and head of institutional asset management at BNY Asset Management, said in the announcement.

Level One and Level Two are particularly for corporate pension plans in instances where the plan is frozen or the workforce is older and the duration of the liability is closer to that of the assets. Level Three could benefit pension plans in a favorable funding position. Level Three allows the plan to remain invested in asset classes, such as equities and alternative investments, where return expectations are higher than those for traditional fixed income. The fixed income derivative market offers a way to reduce the volatility of the plan’s liability.

ToTALS will be marketed to pension plans in the US and UK. More information can be obtained here .