Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish

Constructing next-generation return-seeking portfolios

As corporate DB plan sponsors finalize their liability-hedging allocations, a growing number are considering how to structure their return-seeking allocations. Members of our LDI Team propose a portfolio construction framework that emphasizes funded-ratio growth via a more stable path of returns.

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

Generating funded-ratio growth through return-seeking portfolios

As corporate DB plan sponsors have gradually settled on strategies for their liability-hedging allocations and glidepaths in recent years, many we’ve spoken with have turned their attention to their return-seeking allocations — and, in particular, how best to structure them to generate funded-ratio growth. Our framework for return-seeking portfolio construction can help plan sponsors think though this decision.

As highlighted in this video, the framework emphasizes funded-ratio growth via a more stable path of returns, and in an upcoming paper, we’ll  provide more about the two  core tenets of our approach:

  • Equities can be a powerful source of funded-ratio growth in some environments but can be less reliable in others.
  • Mitigating funded-ratio drawdowns is key to funded-ratio success due to the power of compounding (shallower drawdowns allow assets to recover more quickly).

 

RECOMMENDED FOR YOU

LDI Alert —<span><br>Time to buy credit or Treasuries? Ideas on calibrating the trade-off </span>
After hitting derisking triggers in 2021, many plans are looking ahead to the next trigger and thinking about how expensive the investment-grade credit market is currently. LDI Team members Connor Fitzgerald and Bill Cole offer metrics to aid the decision-making process and consider potential alternatives.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
November 2021
LDI Alert —
Time to buy credit or Treasuries? Ideas on calibrating the trade-off
,
publish
The evolution of derisking:  Assessing new and time-tested  liability-hedging ideas
As defined benefit plans contemplate the best path to their eventual "end state," members of our LDI team update their liability-hedging research with a blend of traditional benchmark ideas and new opportunities to capitalize on changing market conditions and a broader investment universe.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
October 2021
The evolution of derisking: Assessing new and time-tested liability-hedging ideas
,
publish
Louis Liu
 PhD, CFA, ASA, MAAA
Inflation’s big comeback: Should corporate pensions care?
It's been a long time since anyone worried about inflation getting off the ground. That seems to be changing, and for corporate plans, we think the risk is greater for return-seeking portfolios than liability-hedging portfolios. But we also believe that falling inflation is more worrisome than rising inflation. In this paper, we consider the implications and the potential role of different return-seeking allocations in preparing for various inflation outcomes.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
June 2021
Inflation’s big comeback: Should corporate pensions care?
,
publish
Cash-balance liabilities: A new investment framework
A cash-balance plan is very different from a traditional pension plan, and the differences can have a major impact on the interest-rate sensitivity of the plan’s liability. In this paper, we consider the implications of a cash-balance plan’s design and propose an investment framework focused on capital preservation, consistent income, and liquidity.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
June 2021
Cash-balance liabilities: A new investment framework
,
publish
Louis Liu
 PhD, CFA, ASA, MAAA
LDI Alert —<span><br>Adding intermediate credit to the derisking tool kit: What plan sponsors need to know</span>
With a growing number of derisking plans seeking exposure to intermediate credit, members of our LDI team highlight some notable differences between the intermediate and long-duration segments of the investment-grade market, as well as some key investment considerations.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
March 2021
LDI Alert —
Adding intermediate credit to the derisking tool kit: What plan sponsors need to know
,
publish
Constructing next-generation return-seeking portfolios
As corporate DB plan sponsors finalize their liability-hedging allocations, a growing number are considering how to structure their return-seeking allocations. Members of our LDI Team propose a portfolio construction framework that emphasizes funded-ratio growth via a more stable path of returns.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
March 2021
Constructing next-generation return-seeking portfolios
,
publish
LDI Alert —<span><br>Time to prepare for a “clear skies” environment?</span>
Funded-ratio improvements and the associated derisking opportunity can be short-lived. LDI Team members Bill Cole and Connor Fitzgerald offer ideas to help plans ensure they’re ready.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
January 2021
LDI Alert —
Time to prepare for a “clear skies” environment?
,
publish
Mapping the impact of climate change
In this three-minute video, we share the climate-exposure risk-analysis tool we have developed in partnership with Woodwell Climate Research Center. This software helps our investment teams track and assess physical climate risks facing capital-market assets around the world.
Archived insights remain available on the site. Please consider the publish date while reading these older insights.
publish
January 2021
Mapping the impact of climate change
,
publish
Tim Antonelli
 CFA, FRM, SCR