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)
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 InvestmentsEmojoy Brown, ASA, EA
