Liability-driven investment | Insight Investment

Putting liabilities at the center of your decision making

We offer a full set of liability risk management capabilities. These can be deployed as simple scalable ‘building blocks’, or we can fully customize a solution to meet your bespoke needs and unique liability profile.

Your investment outcome and governance framework can be enhanced by applying a range of approaches. We can help you:

• remove uncompensated sources of risk
• make your investment strategy more ‘liability aware’ or implement a more comprehensive liability-matching program
• fully ‘complete’ your liability strategy and hedge across multiple portfolios and asset managers

We can add precision where it matters, including approaches that:

• implement custom benchmarks to incorporate your discount curve
• hedge the risks of more complex liability structures and profiles
• manage assets directly to your liability cashflows
• lock down your outcome with self-managed run-off portfolios (also known as ‘hibernation’ or ‘self-managed defeasance’)

Our cashflow-driven investment (CDI) strategies seek to help you to meet your obligations as they fall due, without impairing your ability to generate your required return or to control liability risks.

Many pension plans are now starting to pay out more than they take in. This has three important implications:

• as assets shrink, percentage returns translate to lower dollar returns – meaning preserving assets and avoiding drawdowns can be crucial
• as a plan matures, a shorter investment horizon makes the timing of returns more critical – with less time to recover any negative performance before liabilities fall due
• as cashflow obligations come due, investors may be forced to sell assets to meet them – doing so in stressed market conditions can permanently damage the expected asset base and future return potential

To meet these challenges, we can help you to:

• generate cashflows required to pay obligations: this is achieved by sourcing assets and asset classes which generate contractual cashflows, prioritizing those with higher certainty of income and maturity proceeds
• secure returns with greater certainty: by identifying and prioritizing assets high up in the capital structure and holding these investments to meet your liability outflows
• reduce the mismatch between your liabilities and investment strategies: minimizing reinvestment and forced-selling risks

We can help you set your strategic endgame target and adapt your portfolio to achieve your funding goal with greater certainty.

Whether your target is buy-out or self-managed run-off (also known as hibernation or self-managed defeasance), our holistic framework seeks to increase the certainty of achieving your liability outcomes. It considers:

• locking down the liabilities: Recognizing that it is difficult to invest against a moving target we can help you to lock down as much risk affordable or feasible through liability matching and hedging strategies
• solving the deficit problem: We understand that many plan sponsors wish to mitigate or minimize contributions. We can therefore help you to build high-certainty solutions sufficient to deliver your required excess returns while controlling risk
• managing uncertainty: We believe the most significant risk is the occurrence of a shortfall relative to achieving your strategic outcome. Investment strategies need to be resilient in the face of an uncertain future and that building solvency buffers are long-term desirable

Whatever your pension plan’s ultimate objective, we believe applying this framework and managing the trade-offs you face on an ongoing basis will help you achieve your goal with greater certainty.