Beyond traditional LDI: The role of LDI diversifiers in DB plan portfolios

2025-04-16

Justin Owens, CFA, FSA, EA

Co-Head of Strategic Asset Allocation

Ryan Dembinsky

Senior Research Analyst

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Defined benefit

Traditional LDI hedges interest rate and equity risks—but what about credit spread risk? Discover how LDI diversifiers can strengthen your DB plan's resilience. Read the full paper.

As corporate defined benefit (DB) plans improve their funded status, liability-driven investing (LDI) strategies must evolve. Traditional approaches relying heavily on public investment-grade fixed income hedge major risks but leave gaps in spread diversification and return potential.

This paper explores LDI diversifiers—such as IG securitized fixed income and private placements—which can enhance portfolio resilience while balancing liquidity, complexity, and fees. By incorporating these alternatives, sponsors can optimize risk-adjusted returns, mitigate surplus risk, and sustain long-term funding stability. As DB plans mature, refining the LDI program with strategic diversifiers becomes essential for managing evolving risk exposures effectively.

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