SEI Global Poll: LDI Investing Continues to Gain Traction

Pension plans are increasingly adopting liability-driven investing strategies, a new SEI study shows, with the UK and Netherlands in the lead.

(December 1, 2010) — Schemes in the UK and Netherlands are paving the way toward an embrace of liability-driven investing strategies, according to SEI.

The firm’s fourth annual global LDI Global Quick poll showed that 100% of respondents from the Dutch market are incorporating an LDI approach. Following the Netherlands, the UK comes in second place with 67% of respondents either currently using an LDI approach or expected to use the strategy in the next year. “Improved funded status” was ranked as the most popular benchmark for pension investment success. A total of 22% of respondents selected “minimize or control contributions,” surpassing “absolute return” as the second most popular primary benchmark.

Furthermore, organizations have continued to make changes to pension investments. More than two-thirds (69%) said they have made an asset allocation change in the past year. While more than half (51%) said consultant recommendations drove those changes, more than a quarter (28%) said the changes were made to better control pension expenses. The study showed long duration bonds continue to be the most popular investment product used for implementing LDI strategies, while interest rate derivatives saw a significant decrease in popularity over the past year.

SEI institutional group EMEA director of European advice Charles Marandu said the results of the poll, completed by 110 executives overseeing schemes ranging from $20 million to more than $5 billion in assets, reflects a greater understanding of LDI in managing funding levels of pension plans. “This supports our view at SEI that LDI is not an off-the-shelf product but is a strategic approach used to achieve funding goals,” he said.

Jon Waite, Director, Investment Management Advice and Chief Actuary of SEI’s Institutional Group, added: “While the interest in liability driven strategies remains high, the reality is that the timing of implementation will differ from one organization to the next. There are often numerous moving parts within these complex strategies and pension plan sponsors need their providers to deliver expertise and guidance,” said “At a time when funding levels are low, pensions plan sponsors need insight around how these strategies can be implemented now and in the future to best protect the plan’s funded status.”

According to SEI, for the third consecutive year, the most popular definition of LDI among poll participants was different from the previous year, but the top two definitions have remained consistent. Last year, respondents most commonly defined the term as “matching duration of assets to duration of liabilities.” The top definition this year: “a portfolio designed to be risk managed with respect to liabilities.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742