Corporate Pensions

Beyond bonds

Enhanced credit in pension LDI

Over the last few years, we have been working with pension plans on liability-hedging portfolio design which makes use of credit outside the typical corporate investment grade bonds. We’ve seen pension investors allocating to what we refer to as enhanced credit asset classes — debt instruments which may offer routine coupon or loan repayments and exposure to credit beta.

In this paper, we consider a model plan’s structure and how careful consideration of broad credit instruments can support its hedging and growth goals. We advocate for treating these assets as a custom spread completion portfolio around which a capital efficient rates hedging portfolio can be optimized.

In the video below, we discuss the merits of adding enhanced credit to the liability hedging portfolio.

Quick convos with Client Insights Unit (CIU)

Group of people discussing with coffee cups.
Quotation start

With thoughtful design, there are certain credit assets which can be considered as both a part of the hedging portfolio and offer some diverse sources of growth.

Director, Liability Driven Investments
Emojoy Brown, ASA, EA

Authors

Emojoy Brown, ASA, EA
Director, Liability Driven Investing
Angela Zhang, CFA, CAIA
Director, Client Insight Unit
Anvesh Mittal
Associate, Client Insight Unit

Download the full paper to dive deeper

As a fiduciary to our clients, we aim to offer advice that can help pensions preserve their healthy financial positions and improve retirement security for their workers.
cover page of beyond bonds

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