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White papers

Please click the name of the white paper below to download a PDF file of the complete white paper

The 2013 Cutwater Asset Management Defined Benefit Pension Plan Survey
Firm: Cutwater Asset Management
Authors: David R. Wilson, CFA, Kimberlee Lisella - Customized Strategies Group
Overview: Cutwater Asset Management recently conducted an annual survey of over 100 corporate defined benefit pension plans across the U.S. to gain insights into the investment strategies, risk tolerances and intentions of pension plans as they face market uncertainty, low interest rates, and depressed funded ratios.

Extending Fixed Income Duration - Which Strategy is for You?
Firm: Cutwater Asset Management
Authors: David R. Wilson, CFA, Kimberlee Lisella - Customized Strategies Group and Jesse L. Fogarty, CFA - Portfolio Management
Overview: So, you’re a defined benefit pension plan sponsor that has decided to take a step towards liability driven investing by extending the duration of your fixed income allocation to a long duration total return strategy. assuming you are not ready to move to a fully customized asset allocation framework, a key question you need to ask is, should you invest in a strategy that is benchmarked off the Barclays Long credit Index (“Lc Index”) or the Barclays Long Government / credit Index (“LGc Index”)? this paper explores the advantages and disadvantages of both strategies in an asset / liability context.

Managing Pension Assets in the Context of Risk Tolerance
Firm: Cutwater Asset Management
Authors: David R. Wilson, CFA, & Kimberlee Lisella - Customized Strategies Group
Overview: Traditionally, defined benefit pension plans considered theirasset allocation in the context of long-term expected returns, but it’s the volatility of returns, relative to the liabilities, that has been causing the real pain for plan sponsors. Volatile investment returns, particularly those that are not significantlycorrelated to the discounting methodology of the liabilities, can cause an immense amount of funded ratio volatility, forcing a plan sponsor to make unanticipated, outsized contributions to its plan. It’s not easy, however, to manage thevolatility of the funded ratio and contributions: it requires an in-depth analysis of the asset allocation and the role it plays in creating risk within the plan. This paper seeks to presentour approach to managing volatility and developing de-risking solutions in case study format.

Liquidity and Complacency
Firm: Janus Capital Group
Overview: We have been warning clients for well over a year now about increasingly illiquid conditions in corporate credit markets, particularly high yield markets. We believe a liquidity crisis is coming, and that few investors are prepared for it. In our paper, we offer perspective on these evolving market dynamics and how the market's thirst for liquidity may present opportunity for strategic long-term investors.

Diversification into International Fixed Income: Tempering the Influence of U.S. Deficits, Cliffs, and Ceilings in a Portfolio
Firm: Pyramis Global Advisors
Authors: Jamie Stuttard, Head of International Bond, Portfolio Management; Chris Pariseault, CFA, Institutional Portfolio Manager; Maxim Golts, Senior Investment Strategist; and Winnie Choi Quantitative Analyst
Overview: Recent economic, political, and market dynamics, including upcoming fiscal-related events thatcould make the U.S. vulnerable to further ratings downgrades, contribute to the need for anexpanded investment opportunity set for fixed-income investors. Given these uncertainties, aninvestor can take advantage of the diversification attributes offered by sovereign bonds, global credit,and foreign exchange. In this paper, we examine the diversification opportunities that fixed-incomeinvestors should consider in light of the current capital market environment.

Stretching for Yield in the Fixed-Income Market
Firm: Pyramis Global Advisors
Author: Jeff Moore, CFA, Portfolio Manager
Overview: Historically low U.S. interest rates present a challenge for fixed-income investors looking to accumulate enough wealth to keep pace with inflation and the seemingly unrelenting increase in their liabilities (e.g., education, retirement). Forecasts for tepid domestic economic growth, compounded by increased demand for fixed-income securities from an aging U.S. population, suggest low bond yields could persist for some time.

Applying Liability-Driven Investing in a Low Interest Rate Environment
Firm: T.Rowe Price
Author: Peter Austin, Head of Fixed Income Solutions
Overview: Many corporate defined benefit plan sponsors have experienced dramatic declines in funding status since the 2008 financial crisis as U.S. interest rates and bond yields have fallen to record lows. With the Federal Reserve expected to hold short-term rates at near-zero levels into 2014, little relief is in sight. Low yields have led many sponsors to adopt a “wait and see” approach toward plan de-risking, whether through increased fixed income allocations, duration extension, or both. De-risking strategies in the current environment could include modestly extending duration to exploit a steep yield curve and shifting to a customized benchmark based on a blend of the Barclays Intermediate Government/Credit and Long Government/Credit indexes to allow for strategic allocations to spread sectors that are more effective at hedging pension liabilities. By exploiting customized fixed income solutions that take advantage of yield enhancement opportunities that are presently available, plan sponsors can make further progress in reducing funded status volatility.

Emerging Market Local Currency Bonds: Moving into the Mainstream
Firm: T.Rowe Price
Author: Andrew Keirle, Portfolio Manager, Emerging Market Local Currency Bond Strategy
Overview: Emerging markets local currency bonds represent a growing portion of many emerging markets debt allocations. Yields are generally higher than in most developed markets and credit quality is improving. T. Rowe Price portfolio manager, Andrew Kierle, discusses key attributes, potential risks and where he sees current opportunities.

Global Fixed Income Outlook
Firm: T.Rowe Price
Author: Michael Gitlin, Director of Fixed Income
Overview: A global flight to quality and extraordinary measures by central banks to stimulate economic growth and support asset prices have driven yields across many global fixed income sectors to record or near-record lows. Record fixed income flows have created a strong technical backdrop despite valuations that appear highly stretched by historic norms. While the global economy continues to recover, growth is subdued and unlikely to return to pre-crisis levels anytime soon. A primary factor is the ongoing deleveraging cycle in the developed world.

Customizing the Pension Liability Hedge: A Balancing Act
Firm: Wellington Managament Company
Overview: Experts from our LDI team suggest plans with a typical liability profile may benefit from using a blend of market benchmarks that hedges duration and spread risk, rather than creating a custom benchmark. Customization intended to address curve risk may be of only marginal benefit. In our analysis, the need for a highly customized liability benchmark is reduced further once equities and other return-seeking assets are taken into account. Plan sponsors should revisit and refine their liability-hedging strategy as plan and market conditions evolve.

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