LGIMA’s Bender Sees Further American LDI Growth

(August 9, 2010) – Legal & General Investment Management America’s (LGIMA) John Bender is predicting further liability-driven investment (LDI)  mandate growth among American private pension plans as his firm’s Long Duration Credit Strategy crosses a virtual Rubicon.

According to a release from the firm, the Long Duration Credit Strategy – which has a duration of 12 years, compared to many core bond strategies that commonly have durations of five years – has returned 10.86% of net fees annually since its inception on July 1, 2007. Conversely, the Barclays Capital US Long Credit Index has returned 8.19% over the same time frame. The three-year benchmark is an important one for almost all vendors hoping to make their way into institutional portfolios, as consultants will rarely recommend products with less than a three-year track record.

“It’s been a challenging market environment, but the team has done an excellent job,” Bender, LGIMA’s head of US fixed-income, told ai5000. “We’re proud of the results.”

Furthermore, Bender is predicting continued growth in the American LDI market. “I think that last decade of returns in equity markets presented clear challenges for the traditional 60/40 blend,” Bender told ai5000. “Equities were flat or maybe a bit up over the last ten years – but pretty close to zero. I think that people are realizing that their pension plans are an important component of any firm-wide risk management enterprise.” While some of the global ex-America accounting policies are being talked about in America, Bender notes, “the private market, as you’d expect, is adopting some reforms before any regulation change. Thus, there is a greater interest in matching assets against liabilities.”

Few hurdles are to be seen in the LDI market, Bender believes. “Overall, low interest rates are somewhat of a hurdle to growth,” he admits, but asserts that “the duration mismatch in the pension world is on average quite large, so I see them moving steadily toward a more prudent risk/return profile.”