LDI take up reaches highest ever levels

Schemes are increasingly turning to liability-driven investment in volatile economic conditions, a poll of 100 pension executives has found.

The SEI poll of 100 pension executives in the United States, Canada, Netherlands and the United Kingdom found that 63% were using an LDI strategy.

This is the highest result ever for the poll, which has been running since 2007, when only 20% employed LDI strategies.

SEI said this demonstrated increased "global acceptance" of strategies that consider liabilities.

LDI strategies have come to prominence as defined benefit schemes look to limit the impact of market volatility on their balance sheets.

SEI investment management advice director and chief actuary of its institutional group Jonathan Waite said continued market uncertainty was pushing schemes into LDI and de-risking strategies.

He said: "The ongoing funded status volatility of pensions has placed increased pressure on organizations to make investment decisions that match the assets to the plan's liabilities.

"The volatility has also created a significant need for active LDI and de-risking strategies that can regularly monitor market changes and key trigger points."

The poll also found that 46% of respondents define LDI as "matching duration of assets to duration of liabilities", while 78% said its objective was to "control year-to-year volatility of funded status".

It shows a trend away from the traditional emphasis on absolute return for schemes to a focus on liabilities, as pension executives' primary benchmark has changed from "absolute return of portfolio" in 2007 to "improved funded status" in 2011.

Almost three-quarters of pension schemes are choosing long-duration bonds to match their liability values, while 40% use short-duration cash management and 37% invest in emerging market debt. But only 26% turn to interest-rate derivatives.