Liability Driven Investment

As DB pension schemes mature, their liabilities can grow in size and complexity, which often causes pressure on funding levels to increase.

A liability driven investment (LDI) solution from L&G enables you to retain your allocation to growth, while seeking to reduce risk. With extensive scale and experience in the UK pension market, L&G offers pooled and segregated investment solutions that are specifically designed to hedge interest rate and inflation risk.

We also offer solutions that hedge currency risk for clients, and solutions that seek to mitigate downside in equity markets.

L&G has extensive scale and experience in the UK pension market. We were one of the first managers to offer LDI strategies. LDI has become a cornerstone of DB portfolios, helping schemes to manage funding-level volatility and smooth the journey to endgame. With a shift from focusing on conventional and index-linked gilts to now also incorporating cashflow-driven investing and ESG metrics. We have helped to drive significant innovation across LDI portfolios since our first LDI transaction over 20 years ago.

Our liability driven investment (LDI) solutions seek to reduce the funding level volatility caused by changes in interest rates and inflation. With scheme funding levels having risen, allocations to LDI portfolios are typically focussed towards physical assets, e.g. cash, fixed and index-linked gilts. Leverage is often relatively low, and used to smooth the hedge across curve to ensure a more accurate overall hedge.​

​For schemes seeking to grow funding levels, leverage can also be employed to enable a greater portfolio allocation to growth assets, while maintaining overall hedge ratios to manage interest rate and inflation risk.​

​LDI benchmarks have traditionally been simple real or fixed cashflows (based on a scheme's liability cashflows), discounted by gilts / swaps (plus a fixed margin). However, we’re increasingly finding that some clients may want to evolve their benchmarks to even more closely align with actuarial liability cashflows and endgame objectives. ​

​As part of a bespoke solution we can manage portfolios to more dynamic benchmarks to include factors such as a dynamic discount rate (to account for credit spread sensitivity) and LPI rates (to adapt to the changing inflation sensitivity of LPI increases).​

​We partner together with schemes to construct a bespoke LDI solution using our comprehensive de-risking toolkit:​

LGIM bespoke LDI solutions can offer you:

• Liability modelling and solutions design
• Value-adding implementation
• Dynamic benchmarking​
• ESG integration
• Counterparty risk management
• Management of underlying assets and collateral processes
• Full central clearing compliance
• Detailed risk reporting and performance monitoring
• Access to LGIM’s team expertise and research.

Awards should not be considered a recommendation. Past performance is no guarantee of future results. 

The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. 

Whilst L&G has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within funds that do not include specific ESG goals within their objectives.