According to a press release, the customized benchmarks allow plan sponsors to more accurately gauge the performance of a liability-driven investment (LDI) program by measuring a plan’s assets against the fair market value of its obligations over a period of time.
Liability benchmarks are an alternative to standard market indexes, which represent a collection of securities that are used to evaluate the performance of traditional investment strategies. According to a press release, Northern Trust’s liability benchmarks are customized to each client’s unique cash flow profile, which is obtained from the client or the plan’s actuary. This service also provides flexible modeling options, such as the selection of an appropriate discount curve or multiple cash flow profile scenarios. Using the custom benchmark, plan sponsors can match the performance of actual assets versus liabilities and evaluate the impact of an LDI strategy on the plan’s surplus or deficit.
Northern Trust currently offers this service to institutional plan sponsors. Development is under way to produce a Web-based application which will provide clients the ability to view performance and analytics of their liabilities, including the impact of different interest rate scenarios on the value of the liabilities.
Northern Trust’s Investment Risk & Analytical Services capabilities include risk monitoring and measurement, performance evaluation and other specialty services, with continuing investment in research and client-focused product development.