Creating the LDI infrastructure
The advent of LDI solutions presented a steep learning curve for trustees as they discovered how inflation and interest rate swaps could match pension scheme cash flows. But building the funding and collateral infrastructure for such derivatives is a highly complex task. John Ferry reports
It is almost becoming commonplace. Every other week it seems another large pension fund announces its intention to put in place a liability-driven investment (LDI) solution to more accurately align its assets with its liabilities. When going through these deals with their advisers, trustees will be concerned with issues such as the duration risk of their portfolio and how the overlay of a derivatives solution will affect it, how much it will cost to put the solution in place, what their overall
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