DESIGN, EXECUTE, MONITOR: LIABILITY DRIVEN INVESTING AT REAMS
We help pension plan sponsors design, execute and monitor liability-driven investment (LDI) strategies. We offer these services to support our clients’ existing relationships with investment consulting and actuarial firms.
Three guiding principles encapsulate our viewpoint on LDI strategies. We believe these three principles lie at the core of successful strategies:
- Embrace a change in mindset
- Redefine risk and reward
- Take calculated risk
Simply stated, our design process begins and ends with the client. Rather than offering ‘textbook’ solutions, we prefer to walk with a plan sponsor through an exploratory, iterative discussion regarding strategic objectives, sources of pension risk, and potential options to address unwanted risks. Of course, no two LDI design discussions will ever be the same (because every plan sponsor has unique circumstances, preferences and tolerances); nevertheless, the flowchart shown above illustrates a generalized framework, summarizing common phases of an LDI design discussion.
Quantitative analysis fuels the LDI design process by helping a plan sponsor evaluate upside and downside risks for potential strategies. We use quantitative risk analysis both to assist the sponsor in prioritizing risks and to identify strategies that embody that sponsor’s priorities. Our toolkit contains deterministic (pre-determined scenario), probabilistic (mean/variance) and stochastic (random sampling) models which together offer a plan sponsor a range of perspectives from which to make informed decisions.
Our fixed income investment management expertise can help plan sponsors accomplish strategic pension objectives.
Our investment track record includes more than a decade of managing long duration portfolios against a range of standard and custom benchmarks, including:
- Bloomberg U.S. Long Credit Index
- Bloomberg U.S. Long Government/Credit Index
- Custom liability-based benchmarks (including benchmarks that utilize Treasury STRIPS and interest rate swaps)
Pension plan sponsors who employ a liability-driven investment strategy should regularly monitor the strategy’s effectiveness using objective, informative measurements. Our investment team includes credentialed actuaries who are available to assist plan sponsors in developing LDI reports and metrics like the sample report shown above.
Our LDI risk management reports help clients assess the effectiveness of current investment strategies and identify residual sources of pension risk. We generate these reports monthly using proprietary models tailored to meet the needs of our clients.
We can also provide more frequent estimates of a plan’s funded status.
This report is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. The projections or other information included in the report are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Statements in this report do not constitute an actuarial opinion on behalf of the authors or Reams Asset Management. Statements in this report are based on the opinions of the author and the information available at the time this letter was written. All opinions are subject to change without notice. All investments involve risk, including the possible loss of principal. Reams Asset Management is a division of Scout Investments, Inc., a registered investment advisor that offers investment management services for both managed accounts and mutual funds. Scout Investments is a wholly owned subsidiary of Raymond James Investment Management, which in turn is a wholly owned subsidiary of Raymond James Financial, Inc.
The Bloomberg U.S. Long Government/Credit Index is an unmanaged index of U.S. government or investment grade credit securities having a maturity of 10 years or more.
The Bloomberg U.S. Long Credit Index is an unmanaged index of U.S. investment grade credit securities having a maturity of 10 years or more.
BLOOMBERG, BLOOMBERG INDICES and Bloomberg Fixed Income Indices (the “Indices”) are trademarks or service marks of Bloomberg Finance L.P. Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited, the administrator of the Indices (collectively, “Bloomberg”) or Bloomberg's licensors own all proprietary rights in the Indices. Bloomberg does not guarantee the timeliness, accuracy or completeness of any data or information relating to the Indices.