LDI Strategies Grow in Complexity

November 15, 2012 (PLANSPONSOR.com) More than half (57%) of corporate pension sponsors continue to use liability-driven investing (LDI), an SEI poll found.

According to SEI’s Annual Global Liability Driven Investing Poll, among those organizations using LDI, more than half (52%) invest greater than 40% of their portfolios in an LDI strategy.  

As LDI continues to be an important risk management strategy, implementation has evolved to provide a more sophisticated match of the plan’s duration of assets to liabilities. According to the U.S. findings of the poll, two-thirds (67%) of participating organizations currently use an LDI strategy, 10% more than the global average. One-third (33%) implement LDI via an overlay of treasury strips and swaps, and 31% have a glidepath with automatic triggers.  

The top three most important criteria for implementing a successful LDI strategy cited by U.S. respondents are: 

  • Framework incorporates funded status, benefit stream and duration of exposures (86%); 
  • Strategy incorporates organization’s risk tolerance and key corporate sensitivities (71%); and 
  • Liability is matched in a more sophisticated and highly customized way (67%).

As LDI increases in complexity, many plan sponsors are evaluating the types of providers they partner with for pension investment management. More than one-third (35%) of U.S. poll participants said their organizations use or would consider using a fiduciary manager or investment outsourcing provider. Of those currently using a traditional consultant, 40% said they would consider making a change to an investment outsourcing provider within the next three years. Additionally, of those organizations currently using only internal staff for pension management, 41% also said they would consider outsourcing by 2015. 

The global poll was conducted by SEI’s Pension Management Research Panel and included 125 corporate pension executives from the United States, Canada, Netherlands and United Kingdom. None of the participating organizations are institutional clients of SEI.

For the complete poll summary with U.S. highlights, visit www.seic.com/ldi-poll. For a summary with Canadian highlights, visit www.seic.com/ldi-poll-ca.