LDI, liquidity and returns: where do we go from here?

Liability Driven Investment (LDI) forms the core of many defined benefit (DB) pension schemes’ investment strategies. However, questions have arisen following the gilt crisis last year around whether these strategies are still ‘safe’, given the use of leverage.

LDI has been used for decades to help DB pension schemes reduce their exposure to movements in both interest rates and inflation. But, as leveraged LDI made headlines over September and October 2022, regulators have turned their attention to the industry, and LDI managers and trustees have taken action to ensure that leveraged LDI portfolios are more resilient and robust towards the economic shocks seen last autumn.

We believe there is still a compelling case for leveraged LDI. However, while changes have already been made to LDI portfolios, more focus is needed on the balance between liquidity within the investment strategy, alongside schemes’ hedging and return targets.

Our Investment Consulting team considers the below. 

• Why the case for LDI remains strong
• How the LDI landscape has changed and where it is going next
• How to increase collateral without sacrificing returns
• Pooled funds vs. segregated accounts

Read our briefing note for more details.