As 2014 began, a combination of strong asset returns, favorable changes in interest rates, and voluntary pension contributions had significantly increased funded ratios relative to a few years ago. As a result, many plan sponsors have moved into a more advanced stage of a liability-driven investing (LDI) implementation, and have shifted more pension assets into custom liability-based bond mandates. These custom LDI mandates typically have a primary objective that is different from generating excess return relative to a traditional public benchmark. Instead, an LDI mandate will have two important goals: producing returns that outperform or keep pace with the liability (or
a liability proxy used for reporting purposes), and minimizing overall funded-status volatility along the way.
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