Assessing Low-Volatility Assets in the LDI Framework
Managing assets within the context of a defined-benefit pension plan differs from traditional asset management in several ways, mainly due to the funds’ different investment objectives. The usual objective of a traditional portfolios is to maximize expected risk-adjusted returns. In contrast, the objective of a pension plan is to meet expected future liabilities. The primary concern for the design of a pension plan, therefore, is to maximize the possibility that all future liabilities can be satisfied by the growth of pension assets and minimize the risk that asset growth fails to fund the future liabilities.