Liability driven investments is an investment strategy that manages an investor’s assets relative to their liabilities. The first step in our process is to gain an exact understanding of an investor’s liabilities and how they are likely to react to a wide range of risk factors.
Our investment process leads to the development of a solution that has two distinct components:
- Risk-protection component: this hedges the risk factors of the liability, such as interest-rate risk and inflation risk. The solution will use a combination of bonds and interest-rate derivatives in structuring the hedge, depending on the liquidity and value offered by the respective markets to which the portfolio is exposed.
- Return-seeking component: this serves to generate outperformance over and above an investor’s liabilities through the use of the full spectrum of interest-bearing assets and investment strategies.
Our investment process determines how the solution will be allocated between the risk-protection component and the return-seeking component. This will ultimately be a function of the relative level of markets, the funded status of the investor and the investor’s risk appetite.