Liability Driven Investment(LDI)
The ongoing financial crisis has massively impacted most Pension Funds often increasing their deficits with consequent problems. Volatile investment markets have resulted in Liability Driven Investment (LDI) possibilities and techniques being given initial or extra emphasis.
What is LDI, how does it work and what are the issues, alternatives, costs and risks is the object of this very useful one day course. No prior knowledge of LDI and only a reasonable knowledge of Securities is assumed.
- Trustees of Pension Funds of any size
- Plan or Scheme Sponsors, Benefit Consultants
- Fund Managers and Actuaries
- Pension Administrators
- Middle Office & Investment Support Administrators
- Defining the Pensions problem. Under funded Schemes and “filling the hole”
- Characteristics of Liabilities:Long dated (can run out to 80 years), Value sensitive to changes in interest rates, High dependence on inflation often complex eg LPI
- Characteristics of Assets: Typically low exposure to interest rates, even less exposure to index – linked bonds, high UK equity exposure, high UK concentration
- Assets & Liabilities and the impact of Plan Duration
- Problems of traditional benchmarks for pension schemes – Too much focus on Tracking Error and too little focus on Benchmark risk.
- What is Liability Driven Investment? – Negating “unintentional” risks…but leaving intentional investment risks designed to provide an efficient funding programme to fill a schemes deficit. LDI does not usually mean “passive”.
- Bonds in LDI solutions. Bond types. Managing exposures, interest rate, duration and inflation risks
- Swaps as a solution for LDI. Swaps explained including the relevant varieties.
- Using the swaps market – Greater liquidity and variable hedging ratios using unfunded derivative instruments)
- Example case
- Other LDI solutions; Infrastructure, Hedge funds, Property, Buy outs etc
- LDI and Active Asset Allocation. The balances.
- Plan Sponsors and impact of FRS17/IAS19 (impact of pension deficit on the day to day running of your business)
- Implementation and timing a LDI transaction
- Managing Counterparty risk - The Collateral management process
- Once we have implemented an LDI Strategy, what now? Ongoing Management of LDI process: ongoing liability modelling, asset modelling, swaps rebalancing, collateral management, risk monitoring, swap re-couponing, client reporting needs
- Risk control in Pension funds is illusory – deficits can widen even when equities rise!
- Rate sensitivity (DV01) and assumptions around changes in interest and inflation rates
- Backing out of a required rate of return from investment assets to meet a given deficit funding schedule
- The PPF and the regulatory burden
The course either has new dates in data loading, or is only run as a dedicated or In Company course.