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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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
