Liability-driven investing (LDI)

Pension risk management strategies designed to improve total portfolio outcomes.

The challenge

How do you manage the risk of unfunded liabilities?

We know what's at stake. Real people depend on your pension plan's future payouts to fund their retirement years. As a fiduciary, it's your responsibility to manage your organization's pension fund in the context of the promises made to your employees and pensioners. A liability-driven investment strategy - matching assets to liabilities - efficiently manages the risk of not meeting those obligations.

Defining LDI

What is liability-driven investing?

Liability-driven investing, or LDI, is an approach that focuses the investment policy and asset allocation decisions on matching the current and future liabilities of the pension plan. LDI can effectively manage portfolio risk and help minimize the impact of the pension plan on the organization's financial health.

Three things measure the success of the plan's investment strategy:

How well it does at gaining enough assets to cover all current and future liabilities

Whether or not the funded status improves

Reduction in the volatility of the funded status relative to prior strategies

How does our LDI solution help solve the problem?

Delivering a customized liability-driven investing solution

While LDI has become a well-known approach, it is certainly not a one-size-fits-all solution. The portfolio needs of each Defined Benefit (DB) plan sponsor are driven by specific circumstances related to funded status1, plan status2, institution type and the organization's overall health. Our flexible implementation platform and broad actuarial and advisory capabilities offer clients a robust range of liability-driven investing solutions tailored to a client’s current situation and designed to evolve as those needs progress.

Drawing on decades of experience working with some of the world’s leading pension plans, we will work alongside your team to develop a tailored LDI strategy that focuses on the behavior of the total asset portfolio, fits your organization and delivers real, lasting value for your pension plan.

Our specialists will:

1. Use innovative tools

To fully and deeply understand your situation and then identify and articulate your plan goals and objectives.

Graph and magnifying glass

2. Analyze and model key risk factors

Factors such as interest rate, inflation and duration3 risks—on projected future liability cash flows. Ensure that downside risks are understood and acceptable.

3. Construct a liability benchmark

To more closely match the duration of your plan liabilities so you can better determine whether plan assets are generating sufficient returns to meet obligations to current and future retirees.

4. Select an appropriate asset allocation strategy

To better manage duration and interest rate risk on plan liabilities.

5. Define the non-LDI assets as return-seeking assets

Manage them in a risk-aware manner to improve funded status as well as offset new benefit accruals.

6. Implement and monitor the asset allocation strategy

Adjusting as warranted as the needs of the plan change.

Frozen plan handbook

Designed as a simple, illustrative guide for those who have already frozen–or are considering freezing–their pension plans to help in your decision-making.

Request yours today
A corporate pension finance handbook | Russell Investments

What sets us apart

Why choose Russell Investments for liability-driven investing?

Good strategy requires effective implementation that can both contribute to returns and reduce risk. This is where we excel. We bring a unique combination of plan management experience and expertise with robust implementation capabilities as an asset manager. The strategies we design and recommend to our clients are made with full knowledge of how these strategies can be put to work effectively and efficiently in the market. And then we dynamically manage4 these strategies, looking out for our clients’ best interest as their plans evolve over time.

From strategy to execution, we will align ourselves with the best interests of your organization and deliver an end-to-end solution that aims to improve the total portfolio outcome for your plan.

Using knowledge gained from our 40+ years as consultants with major pension plans

Asset-liability study

The asset-liability study will drive a total portfolio multi-asset strategy (return seeking and LDI) based on the specifics of the pension plan. A proprietary projection model will forecast future contributions, pension expense and funded status scenarios for the pension plan based on a variety of asset allocations over a 10-year time horizon.

Pension Report Card

Monitoring of funded status and key performance reporting statistics of the pension plan delivered in the Pension Report Card.

Risk minimization

We set the specific liability hedge ratio for the LDI strategy based on key rate durations and sponsor desire to minimize interest rate risk and credit risk.

Risk monitoring

Monitoring of the holdings-level risk relative to the plan liability through our Surplus Risk Tool (SRT), which calculates the Value at Risk (VaR) and stress scenarios for pension plans.

Using knowledge gained from our 30+ years as an investment manager

Manager research

We seek out the world's top investment strategies and put them to work in your portfolio. Russell Investments' liability hedging funds are constructed using a combination of our award-winning manager research and internally managed strategies.

Derivative overlays

As one of the largest providers of derivative overlays, we have the ability to provide additional flexibility in LDI considerations. We are capital efficient in our hedging strategies which keeps more of your physical dollars working harder in other asset classes.

Portfolio construction

We utilize a combination of Target Duration LDI, Treasury STRIPS5, long government/credit, and derivative exposures (as appropriate) to construct a portfolio suited to meet an individual plan sponsor's liability hedging goal.

Implementation partner

We serve as LDI completion manager as needed to provide oversight of third-party managers and seek to provide effective implementation of target strategies.

Flexibility

Funds and portfolios are managed dynamically to take advantage of and respond to market opportunities.

Using our team of experienced and credentialed professionals

Tenure & experience

We have been working with pension plans for over 40 years. Our team of credentialed actuaries conduct over 50 asset-liability studies per year which gives us insight into the challenges facing today’s plan sponsors and experience delivering solutions to help them meet their overall plan objectives.

Regional savvy

In-depth knowledge of regional pension regulations and environment.

Expert investors

Crucial knowledge of plan design and the impact on strategy and investments (different management strategies for open pension plans vs. closed or frozen plan design, cash balance plans, etc.).

Peter Corippo

Partner with us

Get in touch with us through this form, and we'll reach out to you.

Peter Corippo
Managing Director,
Fiduciary Solutions - Retirement
866-616-8927

About Peter

1 Funded status refers to the extent to which a pension plan's liabilities are "funded" by plan assets.

2 Plan status is based on a pension plan being open to new plan members and managing investments on their behalf or being closed. Examples include open/ongoing, frozen or terminated pension plan.

3 Duration is the number of years required to recover the true cost of a bond from its purchase date and is a means to measure how sensitive the bond is to a change in interest rates.

4 Dynamically manage refers to actively adjusting portfolios, based on our manager research insights and strategists' capital market views.

5 Treasury STRIPS are U.S. bonds that are sold at a discount to their face value and pay full face value at their maturity.

The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.

Products and services described on this website are intended for United States residents only. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained on this website should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Persons outside the United States may find more information about products and services available within their jurisdictions by going to Russell Investments' Worldwide site.

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Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates Management, L.P., with a significant minority stake held by funds managed by Reverence Capital Partners, L.P. Certain of Russell Investments' employees and Hamilton Lane Advisors, LLC also hold minority, non-controlling, ownership stakes.

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