US - Merrill Lynch has launched a series of pension fund liability indices to measure performance on a daily basis, based on "typical" sample plans.
The pension liability indices and tradeable pension indices will be based on information sourced by Mercer.
Phil Galdi, managing director of the Merrill Lynch’s global bond index & analytics group, said: “The new U.S. pension indices are relevant benchmarks to measure pension plan investment performance.”
He added: “By aligning the asset index with the plan liabilities, the new indices solve a long-standing performance measurement problem facing most US pensions.”
Asghar Alam, leader of Mercer’s retirement business in the Americas, commented: “An increasing number of sponsors are using liability driven investing strategies in their pension plans in order to manage the risk to the plan’s funded status.”
Alam added: “These new indices can help plan sponsors review the performance of these strategies.”
The pension liability indices operate by measuring the percentage change in the net present value of the pension liabilities.
The tradeable pension indices were created to mirror actual transactions by measuring the total return performance of a basket of interest rate swaps structured to match the interest rate exposure of the pension liabilities.
Merrill Lynch claimed these tradeable indices would be an efficient tool to create hedging products in connection with managing changes in liability valuations.
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