LDI strategies

LDI strategies involve matching investment decision making with the scheme’s cash flow and liabilities.

Providers will offer a range of LDI products from strategies designed to manage interest rate and inflation risk to more complicated, structured scheme specific “flight plans”, which can take into account and respond to a number of scheme variables.

How we can help

LDI strategies can be accessed through segregated managers or pooled funds and are increasingly integrated into fiduciary manager offerings. In practice, an LDI mandate can involve the use of swaps, synthetic gilts (ie total return swaps and repos), equity options and other more exotic derivatives. This means that LDI may by its nature introduce legal/documentary as well as the other intended investment risks.

Trustees need to be aware that many types of swap transactions are undergoing important changes associated with the new central clearing regimes in Europe, the US and other jurisdictions (EMIR and Dodd-Frank) and our clients are increasingly dealing with the industry’s response to this new challenge.

LDI is likely to continue to be popular among pension scheme trustees and sponsoring companies – we can help cut through the jargon, letting trustees focus on their aims and the strategic or commercial decisions that matter.

See also pension de-risking.