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The Actuary The magazine of the Institute & Faculty of Actuaries

LDI on the rise among world’s pension schemes

Sixty-three per cent of pension executives surveyed in the firm's annual Global Quick Poll now employ an LDI investment approach - the highest outcome in the poll's five-year history and more than triple that of 2007 (20%).

Jonathan Waite, director of investment management advice and chief actuary of SEI's Institutional Group, said the ongoing funded status volatility has placed increased pressure on organisations to make investment decisions that match the assets to the scheme's liabilities.

"The volatility has also created a significant need for active LDI and de-risking strategies that can regularly monitor market changes and key trigger points."

SEI said the trend towards taking an holistic view on portfolio strategy, looking at liabilities as well as assets, was particularly prevalent in the 2011 results.

The main aim of LDI continues to be "controlling the volatility of funded status", but the firm said the primary benchmark of successful pension management had changed significantly over the last four years to "improved funded status" in 2011 from "absolute return of portfolio" in 2007.

In terms of asset allocation, the poll showed that long-duration bonds continue to be a popular strategy (74% in 2011), as bonds and liability values are similarly sensitive to interest rates. Short-duration cash management is also commonly used with 40% of respondents using it this year. Newer LDI products, such as emerging market debt (37%), continue to grow in popularity, but investments in interest-rate derivatives remained low again this year (26%).

The global poll was conducted by SEI's Pension Management Research Panel and included 100 pension executives from the US, Canada, the Netherlands, and UK. None of the participating organisations are institutional clients of SEI.