FIXED INCOME

Liability-driven investing (LDI)

Why BlackRock for LDI?

Our LDI platform provides defined benefit plan sponsors with the power and flexibility of one of the most comprehensive fixed income businesses in the world, combined with proprietary asset-liability focused technology.

Investments
Investments
LDI investors require both diversifying credit investments and capital-efficient rates strategies.
Technology and innovation
Technology and innovation
LDI investors can benefit from both a direct license to our risk management technology and the ability to engage our LDI team, tools and reporting.
Custom liability expertise
Custom liability expertise
As your plan’s LDI strategy evolves over time, our services keep up with your changing needs.

Hello and welcome. I’m Matt Nili and I lead the North America LDI Business at BlackRock. We’ve created a series of videos to provide insights on four key questions shown here that were increasingly being asked by clients in the realm of strategy as well as current market dynamics. We understand focus areas in the LDI portfolio can differ a lot depending on what level of funded status has been reached as well as the amount of fixed income that a dictates. The table here just highlights some areas that we think makes sense to explore in the part of many of our recent conversations with clients and consultants. We think plans with the minority in fixed income, call it less than 50 percent of the portfolio here on the left, will still get the greatest bang for the buck from stripped allocations at the long end of the curve and derivative overlays that will allow for more market reductions in rate risk versus the liability. This is a big reason behind the record stripping activity that the market saw in the first quarter of this year. Many more plans will likely start to find themselves in the 60 to 70 percent fixed income bucket in the middle column here, where now the LDI allocation starts to become the majority of the portfolio. At lower funded levels, it definitely still holds that the brute force of strips in derivative can help with risk reduction. This stands for plans that are finding themselves in the 90 to 100-plus percent funded area will want to begin customizing their rate portfolio towards the liability. Spread allocations are also becoming a more integral part of the LDI allocation here, and for some plans it may even start to explore the world outside of standard long investment grade credit in areas like securitized assets or broader multi-sector fixed income strategies.

At the higher end of the fixed income allocation spectrum on the right here, let’s say 70-plus percent allocations customization and focus on where on the spread curve you’re allocated is a lot more important. Here piling into the same long government and credit assets that were once the belt and suspenders of the LDI portfolios should be reassessed. And depending on the liability duration profile and a plans sensitivity to concentration in long investment grade credit, there’s more to explore in intermediate credit, securitized assets and customization of the rate edge. Of course, a key factor that might affect plans at any of these stages in their is the end game or partial end game strategy of a plan and by this we just mean that liquidity events like pension risk transfer and lump sum offering can have a big impact on both the allocations that you source within fixed income as well as the vehicle type of those exposures.

Before you watch the next video, just a couple of key things to remember. First, adding to existing fixed income allocations is quick and straightforward but it can leave a plan with suboptimal exposures. We think it makes sense to rethink the exposures to rates in the level of customization that’s being utilized because it can have a sizeable impact on outcomes. Second, notwithstanding the tighter spread market, credit still has a reasonably strong fundamental backdrop. This said, exploring previously untapped areas in fixed income such as intermediate credit and securitized investments can help create more robust portfolios.

There’s certainly been plenty to talk about and more to come in future thought leadership that we plan to release this year. Some thought pieces on a few emerging topics that we see within LDI will include ESG, liquidity management and even multisector approaches to LDI, so, be on the lookout for those. And I would just thank you again for joining and please feel free to reach out to a relationship manager or a member of our LDI team with any questions or requests for follow-on information. Thank you.

FIH0621U/S-1649447

Hello and welcome. I’m Matt Nili and I lead the North America LDI Business at BlackRock. We’ve created a series of videos to provide insights on four key questions shown here that were increasingly being asked by clients in the realm of strategy as well as current market dynamics. We understand focus areas in the LDI portfolio can differ a lot depending on what level of funded status has been reached as well as the amount of fixed income that a dictates. The table here just highlights some areas that we think makes sense to explore in the part of many of our recent conversations with clients and consultants. We think plans with the minority in fixed income, call it less than 50 percent of the portfolio here on the left, will still get the greatest bang for the buck from stripped allocations at the long end of the curve and derivative overlays that will allow for more market reductions in rate risk versus the liability. This is a big reason behind the record stripping activity that the market saw in the first quarter of this year. Many more plans will likely start to find themselves in the 60 to 70 percent fixed income bucket in the middle column here, where now the LDI allocation starts to become the majority of the portfolio. At lower funded levels, it definitely still holds that the brute force of strips in derivative can help with risk reduction. This stands for plans that are finding themselves in the 90 to 100-plus percent funded area will want to begin customizing their rate portfolio towards the liability. Spread allocations are also becoming a more integral part of the LDI allocation here, and for some plans it may even start to explore the world outside of standard long investment grade credit in areas like securitized assets or broader multi-sector fixed income strategies.

At the higher end of the fixed income allocation spectrum on the right here, let’s say 70-plus percent allocations customization and focus on where on the spread curve you’re allocated is a lot more important. Here piling into the same long government and credit assets that were once the belt and suspenders of the LDI portfolios should be reassessed. And depending on the liability duration profile and a plans sensitivity to concentration in long investment grade credit, there’s more to explore in intermediate credit, securitized assets and customization of the rate edge. Of course, a key factor that might affect plans at any of these stages in their is the end game or partial end game strategy of a plan and by this we just mean that liquidity events like pension risk transfer and lump sum offering can have a big impact on both the allocations that you source within fixed income as well as the vehicle type of those exposures.

Before you watch the next video, just a couple of key things to remember. First, adding to existing fixed income allocations is quick and straightforward but it can leave a plan with suboptimal exposures. We think it makes sense to rethink the exposures to rates in the level of customization that’s being utilized because it can have a sizeable impact on outcomes. Second, notwithstanding the tighter spread market, credit still has a reasonably strong fundamental backdrop. This said, exploring previously untapped areas in fixed income such as intermediate credit and securitized investments can help create more robust portfolios.

There’s certainly been plenty to talk about and more to come in future thought leadership that we plan to release this year. Some thought pieces on a few emerging topics that we see within LDI will include ESG, liquidity management and even multisector approaches to LDI, so, be on the lookout for those. And I would just thank you again for joining and please feel free to reach out to a relationship manager or a member of our LDI team with any questions or requests for follow-on information. Thank you.

FIH0621U/S-1649447

Learn more about liability-driven investing at BlackRock

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Investment philosophy

Our offerings are designed to evolve with the changing needs of the plan, from long credit and capital efficient rates strategies to end-game solutions such as hibernation and pension risk transfer services.

History

From our start as a fixed income boutique, BlackRock is now the world’s largest manager of fixed income assets1.

Today, we combine our investment experience, expertise and resources on a shared technology platform aiming to deliver strong performance and robust solutions to our clients.

Capabilities

Navigating clients’ unique situations, sensitivities, and objectives, our LDI team guides clients to their optimal strategy. The expansive platform suits clients with a customized plan for their unique pension journey. BlackRock LDI offers a range of fixed income investment strategies that seek to meet pension client objectives.

Over $350b in AUM globally1

This graphic depicts the range of fixed income investments strategies offered by BlackRock LDI.
Aladdin technology
Aladdin connects the information, people and tools needed to manage money in real time. This offers the benefits of interactive risk reporting and analytics, portfolio management tools, trading, regulatory reporting & compliance, operations and performance attribution.
Aladdin Technology

BlackRock team

We believe our size allows us to invest in people and technology, creating comprehensive global coverage and thought leadership across regions.

BlackRock has a dedicated LDI team that develops client solutions in partnership with our portfolio management teams across our fundamental, systematic and index platforms.

This image showcases the 29 LDI specialists in the Americas and 39 LDI specialists in Europe.

Source: BlackRock, as of December 31, 2018.

Matthew Nili
Head of US and Canada LDI
Matthew Nili, Managing Director, is Head of the US and Canada Liability Driven Investment (LDI) business.
Read biography

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