Our process begins with a strategic discussion with the client and their advisors to understand the most important issues and objectives at the total plan and LDI levels. We draw on a deep understanding of fixed income markets and pension risk management to understand, analyze and model a Plan’s liabilities and develop an optimal hedging portfolio that fits the return and funding risk needs of our clients. Below are the four primary LDI solutions we deliver to US pension plans:
Schroders Active LDI strategy, also called Value Long Duration, is the foundation of Schroders’ value proposition in the US pension market. It is a fully customizable high conviction actively managed portfolio of long corporate and government bonds and aims to add the most value from sector rotation and security selection decisions. We do not have a style bias (eg, persistently long credit or BBBs); rather we are opportunistic in our approach and encourage our clients to permit this fully to the extent it fits their LDI structure and objectives.
Our team approach utilizes extensive economic, credit, ESG and quantitative research produced by our internal analysts to evaluate broad sectors as well as individual securities and seeks to exploit opportunities created by market dislocations and inefficiencies. Our size advantage permits us to access the full spectrum of corporate issuers, maximizing the opportunity for adding alpha and controlling risk. Our investment approach has been applied consistently since the 1980s and has historically performed well through a variety of market conditions.
Schroders works with a sponsor and their consultant to determine whether a fully customized liability benchmark is best suited for the plan, or whether a more simple-market benchmark, or blend of market benchmarks would be a better solution. Many factors come to bear in this decision, including the plan’s governance framework and the value such precision is expected to bring. Once the benchmark is designed, a custom set of guidelines are established for the investment portfolio.
This is a differentiated way to increase a plan’s allocation to its LDI strategy but without reducing its allocation to ‘growth’ assets and thereby diminishing its expected returns. Such approaches, including “Equitized LDI”, may provide greater flexibility within a glidepath structure, enabling pension plans to hedge a greater amount of interest rate risk at an earlier stage in the glidepath.
Schroders is a world-class asset manager operating from 37 locations across Europe, the Americas, Asia and the Middle East.