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What are the trustees and sponsoring companies of European pension funds talking about when they consider de-risking? Well, not liability-driven investing (LDI), that’s for sure.
During the last week of October, leaders in retirement provision from across the continent gathered for the annual conference of aiCIO’s sister title, PLANSPONSOR Europe, in the Hotel Arts in Barcelona, Spain.
Nestled amid discussions on financial regulation and how to better engage with members, pension fund executives talked about de-risking their investment portfolios. Two sessions focused on this topic; panelists and attendees discussed low-volatility investing, strategic asset allocation, and even risk parity (which is yet to grab as many headlines on this side of the pond). A discussion on longevity risk hedging and associated problems with cleansing and preparing data morphed out of a detailed debate on buy-outs, buy-ins, and bulk annuities.
But LDI? Not so much. Even over coffee and cocktails overlooking the glistening Mediterranean, employers and trustees compared notes on how long they had waited for taxis from the airport due to a strike by drivers. Over dinner, Solvency II regulations and transition management were the order of the day.
In fact, the only person I heard talking about LDI was me, telling a delegate I had to meet the deadline for this edition and should not really be quaffing champagne in one of the best hotels in Southern Europe. She didn’t ask me to send her a copy.
So what does this rather unscientific study of European pensions tell us? LDI is not really on their radar maybe? One of the panels touched on how interest rates and inflation should be hedged to avoid nasty surprises, but there was no mention of a specific strategy that would set investments to do it. Maybe they consider the term too prescriptive. Maybe they are not interested. Or maybe LDI is in-built in their investment strategies anyway.
—Elizabeth Pfeuti