Liability-Driven Investing (LDI)

Pension risk management strategies

Designed to improve total portfolio outcomes

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The challenge

How do you manage the risk of unfunded liabilities?

We know what's at stake. Real people are depending on the future payouts of your pension plan in order 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 - is an efficient means to manage 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.

LDI shifts the focus away from simply beating benchmarks toward improving and stabilizing the funded status of the plan. Success of the plan's investment strategy is measured by three things:


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

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.

Get yours today

Frozen Plan Handbook by Russell Investments

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 most 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 status, plan status, institution type and the overall health of the organization. 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:

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1. Use innovative tools

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

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2. Analyze and model key risk factors

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

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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.

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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 with a goal to improve funded status as well as offset new benefit accruals.

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6. Implement and monitor the asset allocation strategy

Adjusting as warranted as the needs of the plan change.

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 manage 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.


What does our liability-driven investing approach look like?

There’s no one-size-fits all approach to LDI. The following are real-world examples we’ve implemented for these clients:

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A bespoke de-risking glidepath helped this plan improve funded status by 52%

Read the story and results

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A custom LDI-based approach helped improve client funded status over 5%

Find out how we helped improve funded status

Manage the risk that your pension plan will not be able to fulfill the pension promise made to employees and pensioners. Let us design a custom LDI solution to help lower funded status volatility and reduce the risk the plan places on company financials.

We'd love to talk.

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Tell us about your investments and your goals. We can help. Please reach out to me directly.

Rob Cittadini



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