Liability Driven Investing

The ultimate objective of pension scheme investing is to ensure that there are sufficient funds to pay the liabilities. Liability Driven Investment (LDI) puts this objective at the heart of a scheme's investment strategy. A key aim of LDI is to manage funding level risk (i.e. the variability of the scheme's assets compared to its liabilities). In practice, this usually means using a range of assets, such as swaps and bonds, to construct an investment strategy that closely matches the behaviour of the pension liabilities. These assets are often referred to as "LDI assets".

Over the past decade, LDI has become a core investment strategy for many pension schemes. It is widely expected that the LDI market will continue to grow significantly as more and more UK defined benefit pension schemes look to reduce pension deficits and minimise funding level volatility as they approach the defined benefit "end game".

Here at Schroders, we have developed a next generation LDI platform to provide pension schemes of all sizes with the wider toolkit to manage the key components of their funding level risks in a capital efficient manner. LDI continues to be a key area of growth for Schroders and we place huge importance on ensuring the high quality of the LDI solution is met with best in class client service throughout the journey of investing with Schroders. 

We have a unique approach to LDI which provides our clients with clear benefits:

  • Partnership with our clients: We recognise the importance of working in partnership with our clients and advisers when delivering an LDI solution. A governance structure that is appropriate for the client whilst capturing our investment ideas is central to this.
  • Flight Path approach: The aim of the Flight Path approach is to take the scheme from deficit through to a fully funded position whilst ensuring risk is managed appropriately along the journey. Read more about Flight Paths.
  • Daily trigger monitoring and implementation: It is important to ensure that the correct amount and type of funding level risk is being taken at the right time. We are able to monitor our clients' progress against funding level triggers and market yield triggers on a daily basis, with a view to extending or adjusting their exposures when these trigger levels are reached.
  • Flexible solutions with a minimal capital requirement: Our solutions allow clients to achieve LDI exposures with a minimum amount of capital so that the impact of liability coverage on the scheme's growth assets is significantly reduced. We also offer access to a broad range of instruments to deliver as much flexibility in solution design as possible.
  • Open architecture: An additional advantage of our platform is its open architecture nature enabling non-Schroder funds to form part of the solution.
  • Derivative execution: A market leading derivative execution, portfolio management and risk control environment to ensure precision in the delivery of client mandates. We have sufficient size to offer clients the benefits of scale but remain nimble enough to execute on this flexibility.
  • Quality client service: A real commitment to client service, with access to experienced and qualified individuals ensuring we deliver the appropriate solution for your pension scheme needs.

Segregated Portfolio
Schroders offers bespoke segregated LDI solutions, providing a framework to meet the scheme’s liabilities while mitigating unrewarded risk. We currently manage segregated solutions using a variety of structured instruments including Swaps, Synthetic Gilts (Total Return Swaps & Repos), Equity Options, Longevity Swaps and other more exotic derivatives.

Pooled LDI Funds (Matching Plus)
Schroders Matching Plus pooled funds were first launched in 2007 and provide pension schemes with flexible building blocks to invest assets in a way that mitigates the impact on their liabilities of interest rates, inflation and cash flow risks to cover future liabilities. This can be achieved using an efficient amount of capital thus enabling our clients to invest more of their assets for growth. For information on Schroders’ ability to implementation bespoke pooled please contact us.

Schroders’ LDI is underpinned by a specialist group of investment professionals with a wealth of experience and expertise in managing pension scheme risk:

  • The LDI and Strategic Solutions teams consisting of actuarial, investment banking and investment consulting expertise
  • The Structured Solutions team with many years experience of structuring and executing a wide array of derivatives on behalf of UK pension schemes
  • An investment management pedigree that also provides clients with access to a wide variety of other products and strategies in multi-asset, alternatives, equity and fixed income investment to complement LDI solutions where appropriate
  • Comprehensive support from Schroders in-house specialists in legal collateralisation cash management

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