Liability-Driven Investing

LDI Solutions for Plans of $5mm and above and at Various Stages of the De-Risking Process

Liability-driven investing, or LDI, is a portfolio strategy designed to help pension plans reduce funded status volatility. Aegon AM US partners with plan sponsors and consultants to propose solutions that align with the plan's current funded status level, plan status, and investor beliefs. This table outlines several investment options that could be considered:

  LDI Phase 1
Duration-matching solution
LDI Phase 2
Key rate duration-matching solution
Phase 3
Cash flow-matching solution
Investment objective Increase interest rate hedge ratio and retain allocation to return-seeking assets Improve key rate duration hedge and increase allocation to liability-hedging assets Further improve key rate duration hedge and credit hedge spread ratio, and minimize
funded status volatility
Typical plan status Open or closed / frozen plan with higher proportion of active participants Open
or closed/frozen plan with higher proportion of terminated vested participants
and retirees
Hibernated plan with high proportion of terminated vested participants and retirees; no
plans to pursue PRT
Typical funded status Poorly
funded (60% - 80%)
Better
funded (80% - 95%)
 Well funded (95% - 110%)
Proposed investment strategy Reallocate traditional fixed income investments to Treasury STRIPs and intermediate / long duration credit Reallocate portion of return-seeking assets to fixed income portfolio and incorporate more diversified assets across the credit quality and maturity spectrum Customize
portfolio by matching liability cash flows with expected maturities of
liability-hedging assets
Potential investments
  • US Treasury strips
  • Intermediate and Long Credit (investment grade corporates and structured finance)
Add:
  • High yield corporates
  • Emerging markets debt
Add:
  • Commercial mortgage loans
  • Private placements

Solutions Tailored to Each Client’s Requirements

Customized LDI solutions are constructed through an innovative, easy-to-use pooled funds structure or through a customized separate account. The pooled funds approach provides an easy-to-implement solution designed to match a plan’s duration and asset cash flow requirements. Aegon AM US' pooled funds expand the investable universe beyond government and credit sectors, providing the potential for increased diversification while searching for attractive relative-value opportunities across the yield curve.

For separate account solutions, a customized investment strategy is constructed to suit a plan’s desired return goal and risk tolerance. Using the full array of fixed income sectors, we create a unique investment strategy that matches a plan’s duration, key rate duration and cash flow requirements.

Aegon AM US LDI Pooled Strategies

Strategy

AuM*

Inception date

Long US Treasury Strips $249 million April 1, 2017
Long Credit $529 million April 1, 2017
Intermediate Credit $251 million October 1, 2018

 *As of Decemeber 31, 2019