Under an LDI strategy, sponsors relegate assets to 2 buckets: 1 seeks protection by matching liabilities to fixed-income strategies; the 2nd looks to capture growth through equities. But simply moving away from equities is proving not enough. (Photo: Shutterstock)
All-time low discount rates that determine the cost of a defined benefit plan's liabilities, along with equity market volatility, are forcing more sponsors to re-examine the risk component in liability-driven investment (LDI) management strategies.
The aggregate funded deficit of the 100 largest corporate defined benefit plans expanded by $64 billion in the third quarter of 2019, despite an $18 billion increase in the value of plan assets, according to Milliman's Pension Funding Index.
Olivia Engel, CIO , Active Quantitative Equity Strategies, State Street Global Advisors. (Photo: State Street Global Advisors
Plan liabilities increased by $82 billion, thanks to declining discount rates. From the end of September 2018 to the end of September this year, the discount rate sank from 4.18 percent to 3.09 percent.
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