Our Philosophy

“The best defense is a good offense.”

Schroders believes that the structural challenges associated with managing an LDI portfolio make liability-driven investing far from the pure hedging exercise many perceive it to be.

Future-proofing your LDI plan

Schroders approach to LDI is high-touch and customized, with a focus on addressing clients’ asset / liability, portfolio construction and risk management challenges. What sets us apart is how closely we engage with clients and their consultants to design and deliver solutions aimed at hedging and outperforming a Plan’s liabilities. We bring broad and deep expertise across all facets of pension risk management, from liability-matching to return-generating portfolios, coupled with a track-record in long duration management that spans over 30 years. Explore the ways Schroders can help plan sponsors future-proof their LDI portfolios to thrive in the market environments to come. 

What is Schroders philosophy?

Earning greater returns in LDI is not aspirational, rather it is an absolute necessity to keep up with the liabilities over time. The effect of credit downgrades on the performance of long duration portfolios means an active management approach is required and the role of LDI assets cannot just be seen as hedging interest rate exposure or running low tracking error to a Credit or Gov/Credit benchmark.

That said, we believe clients should hedge as much of the interest rate risk of the liability as possible and not engage in making active bets on interest rates, whether through active managers or a structural decision to be under-hedged relative to the liability. For most plans the right balance is to focus on protecting the main sources of funding risk, while employing a high conviction investment approach within prudent constraints. Pursuing the false precision of an immunization strategy which seeks to precisely hedge all the risk of changes to the interest rate curve is not needed for all but the best funded plans that are almost entirely invested in LDI.

We believe Treasuries have a multi-faceted role to play in sophisticated LDI portfolios. A greater Treasury allocation often helps protect against equity risk in the portfolio in addition to hedging the interest rate risk. Further, the fundamental decision to over or underweight Treasuries can add tremendous value and enable risk to be reduced when increasing credit quality is not sufficient.

Finally, robust LDI programs should seek to maximize diversification, both at the security level and in the active management approach. Our LDI portfolios facilitate greater access to the smaller issuers that make up the majority of the investment grade credit universe. In addition, our research has shown that our value-driven approach is highly complementary to many other managers within the long duration space.

Schroders’ Alpha matrix: A framework for measuring diversification

Schroders’ active LDI portfolios are managed against either customized or standard market indices. Active portfolios can be managed within client-specific tracking error targets and can be managed with or without derivatives, and in tandem with completion managers as necessary.

Below are several ways in which Schroders partners with plan sponsors and their consultants to deliver value through both insights and potential alpha:


  • Asset/liability and asset allocation analysis
  • Active credit and gov/credit management
  • Liability benchmarking
  • Enhanced LDI using derivatives to expand hedging
  • LDI combined with risk management of growth assets

Important information:

The views contained herein are those of the Portfolio Solutions team, and are subject to change.  There is no guarantee that all future risk will be accurately anticipate or that the solutions provided will appropriately minimize all risk associated with future events. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this webpage when making individual investment and/or strategic decisions. All investment have risk, including the loss of principal. Investments in Fixed-income securities involve risk including, interest rate, credit and inflation/deflation risks.  These risk are magnified with the use of derivatives, such as options and futures, which can be illiquid and may disproportionately increase losses.  Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy.  No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. The opinions in this webpage include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realized.

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