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A Philosophy for Managing Corporate Pension Assets: LDI is Everything

September 2, 2022

Parametric’s Liability-Driven Investing (LDI) solutions are designed for pension plans and other institutional investors with liabilities that represent future expected payouts discounted using market yields. LDI is a risk-mitigation strategy designed to invest assets in a manner that seeks to offset some or all of the changes in value of the liabilities resulting from changes in discount rates as markets adjust over time. Risk mitigation seeks to control surplus volatility and funded status volatility.

LDI has traditionally focused on fixed income assets, including cash bonds and derivatives, and their relationship to liabilities. Parametric’s approach broadens that view to include return-seeking investments and exposure-management overlays. Return-seeking assets likely have some relationship to credit spreads; exposure overlays preserve consistent adherence to target allocations at any point along an asset allocation glide path. Only by considering the entire plan can investors fully realize the transparency and efficiency of their LDI approach.

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David Phillips, CFA, ASA, EA

Director, Liability-Driven Investment Strategies

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