INSIGHTS

A Practical Understanding of LDI

LDI – or liability-driven-investing, involves defining risk relative to the objective of paying liabilities, rather than the objective of maximizing total return.

For corporate pension plans, LDI can be an effective way to reduce the range of outcomes in funded status, which has particular appeal given the asymmetric trade-off associated with a declining funded status relative to a stronger funded status.

Our latest Topics of Interest paper aims to provide a practical introduction into these issues to assist plan sponsors in evaluating whether LDI makes sense for their organization. Once a plan sponsor embraces the concept of LDI as a way to manage surplus volatility, the next step in the process is generally to create a glidepath, which serves as the plan’s road map for de-risking. A subsequent Topic of Interest will cover how and why glidepaths work, and how Verus goes about assisting plan sponsors in creating and implementing them.