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13

years

of experience effectively implementing LDI

Defined Benefit Plans

Liability Driven Investing (LDI)

A better match for your liabilities

The approach you take to implement Liability Driven Investing (LDI) can significantly impact your results. Effective LDI can be the key to managing funded status volatility of the pension. SEI's integrated, precise approach to LDI implementation delivers:

  • Improved ability to meet long-term goals
  • Timely decision making supported by portfolio modeling and stress testing
  • Ease of implementation through an efficient, integrated model
  • Better ability to predict the impacts of the plan on overall corporate finance
  • A more precise match to your liabilities through a custom, active implementation 

Understanding organizational risks
Gain a clear understanding of how your LDI strategy affects overall organizational finances. When developing the LDI strategy, we consider financial flexibility including access to capital and the correlation of operating cash flows to market indices and discount rates.

Proprietary modeling
We have industry leading asset/liability modeling technology that quantifies your risk tolerance based on key sensitivities and constraints. Our proprietary modeling tools incorporate:

  • Value risk - how much balance sheet risk is due to pension plan variations
  • Earnings impact - high expected ROA can be a benefit (on paper)
  • Contributions/cash requirements - contributions relative to cash flows

This information serves as a critical backdrop for creating the LDI strategy.

Custom, active implementation
Because liabilities vary in all plans, a custom approach to LDI is critical. We implement a three-tiered approach to achieve a precise match to liabilities through: 

  1. Diversified fixed income funds - spread across the yield curve to minimize single security/sector risk
  2. Treasury strips - overlaying to address any gaps between funds and your liabilities
  3. Active portfolio tilts - implementing a timely point of view across the portfolio

We actively monitor spreads and make proactive changes in seeking to limit the tracking error of your portfolio relative to liabilities.

To ensure you have the appropriate level of risk and return in your portfolio, we identify de-risking trigger points throughout the portfolio and develop a custom glidepath.

Monitoring & support
Your LDI portfolio will be implemented and closely monitored by our internal staff of over 300 experts with actuarial, corporate finance, capital markets, economic, and investment backgrounds. We've got more than 13 years experience of effectively implementing Liability Driven Investing and have done so for hundreds of custom LDI strategies. Currently, over 300 defined benefit clients use our custom process.

An integrated framework
Implementing LDI within an integrated model can provide significant benefits and efficiencies to your organization, including:

  • Timely decision making through enhanced information flow
  • Minimal handoffs and opportunities for error
  • Full transparency of Fixed Income securities for a more precise liability match
  • Daily monitoring, integrated reporting and glidepath management
  • Sophisticated, cost-efficient approach for plans, regardless of size
  • A strong link between organization goals and implementation

 

Learn how SEI can help you manage your defined benefit plan.