Actuarial and Investment Expertise
Utilizing our actuarial and investment expertise, we partner with our clients to build a liability-driven investment (LDI) program focusing on risk management and enabling returns as desired. While other companies deliver black-and-white canned strategies, we add dimension and full-color analysis to our solutions.
We partner with you to design a program that targets your desired interest rate and credit hedge ratios. We utilize several asset classes to build an LDI portfolio, including long-credit fixed income, U.S. treasuries, treasury strips, and interest rate swaptions. We can model our LDI strategies into traditional glide paths and strategies utilizing structured equity or equity derivatives.
Standard LDI Investing Services:
- Design LDI Strategy: A successful LDI strategy involves aligning investments with future liabilities. This process starts with a comprehensive analysis of your current assets and liabilities, future projections, and risk tolerance. By understanding your organization’s unique financial structure and goals, a customized LDI strategy is tailored to meet your specific needs and objectives.
- Implementation: Once the LDI strategy is designed, the next step is its seamless implementation. This involves the tactical allocation of assets, selecting the appropriate instruments, and initiating the strategies in real time. Every step is executed with precision to ensure the strategy aligns with the projected liability objectives.
- Asset Management for U.S. Treasuries, Treasury strips, Interest Rate Swaptions, and/or Equity Derivatives: Asset management in this context involves the meticulous handling and allocation of specific financial instruments. Whether it’s the stability offered by U.S. Treasuries, the zero-coupon feature of Treasury strips, the flexibility of interest rate swaptions, or the potential growth from equity derivatives, each asset class requires a unique management approach. Our team employs advanced strategies and tools to optimize the returns from each of these instruments while minimizing risks.
- Monitoring LDI Strategy: The financial landscape is ever-evolving. As such, a static LDI strategy can become obsolete. Continuous monitoring ensures that the strategy remains aligned with the liability objectives. This involves regular reviews, performance assessments, and adjustments to accommodate market changes and liability shifts.
- Oversight of External Managers: Managing assets effectively requires diverse expertise. While our team possesses comprehensive knowledge, we also collaborate with external managers who bring specialized insights. Our role involves stringent oversight of these managers to ensure their strategies and decisions align with the overarching LDI objectives.
- Advisory (ERISA 3(21)) or Delegated (ERISA 3(38)) Basis:
Advisory (ERISA 3(21)): Our team offers recommendations regarding investments and management strategies on an advisory basis. The final decision, however, rests with the plan sponsor or fiduciary.
Delegated (ERISA 3(38)): On a delegated basis, the plan sponsor or fiduciary entrusts us with the discretion to make investment decisions on their behalf, ensuring expert management and compliance with ERISA regulations.
- Reporting: Transparency is vital to trust. Our reporting process ensures that stakeholders are kept informed about the performance, risks, and returns of the LDI strategy. Regular, detailed reports offer insights into asset allocation, performance metrics, market analysis, and projections. This facilitates informed decision-making and keeps everyone aligned with the objectives.
Each of these components is crucial for successfully managing and optimizing LDI strategies. Together, they form a comprehensive approach to liability-driven investment, ensuring alignment with future financial obligations.
Strategic LDI Consulting Services:
- Design and Implementation of a Glide Path: A Glide Path is an investment strategy that adjusts the asset allocation of a portfolio over time, typically in line with changing risk appetites and financial goals. Within the context of LDI, the glide path ensures that the asset mix becomes more conservative as liabilities approach. Designing an effective glide path requires a keen understanding of both the investment horizon and the liability profile. Once the design is complete, the strategy is implemented, gradually shifting assets to align with the target allocations at various stages, ensuring that the portfolio remains optimized to meet future liabilities.
- Coordination with Actuary on Liability Measurements: Liability measurement is crucial for the success of an LDI strategy. An actuary’s role is to determine the present value of future liabilities, considering various factors such as interest rates, life expectancies, and other economic indicators. Our team collaborates closely with actuaries to ensure that these liability measurements are accurate and up-to-date. This coordination ensures that the LDI strategy is always grounded in real-world data and tailored to meet actual future financial obligations.
- Plan Termination Consulting: There are situations where an organization might decide to terminate a pension plan, either due to financial constraints, restructuring, or other reasons. Plan termination is a complex process that requires careful consideration and expert guidance. Our consulting services in this area provide clients with a comprehensive understanding of the implications, requirements, and strategies for effective plan termination. This includes asset liquidation, settling liabilities, regulatory requirements, and ensuring that participants’ rights and interests are protected.
- Annuity Placement Considerations: Annuity placements can be an effective strategy for managing pension liabilities, especially when considering plan terminations or risk transfers. By purchasing annuities from insurance companies, organizations can effectively transfer their pension liabilities, ensuring that participants receive their benefits while eliminating the associated risks from the company’s balance sheet. Our team provides expert insights into annuity placement considerations, including selecting the right insurance providers, evaluating the cost-effectiveness of the placements, and ensuring compliance with all regulatory requirements.
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