LDI 2.0 Allstate's Path to LDI Implementation and Evolution
Allstate implemented an LDI strategy for its pension plans in 2009 with the intent to review the strategy at least triennially. In the second quarter of 2012, Allstate began work. This session will cover Allstate's initial transition to LDI, lessons learned following the initial adoption, and how those lessons are influencing the second iteration of LDI for Allstate. The session will also cover some of the internal challenges associated with transitioning from a traditional asset only framework to an LDI framework.
Vice President and Chair, Pension Investment Committee
CASE STUDY: PQ Corporation
PQ Corporation’s Kevin Doran and Vanguard’s Paul Bosse describe the conditions that led to the corporation’s implementing an LDI strategy for its pension plan and adopting a dynamic asset allocation policy based on funded status. They will report on progress to date, along with how the plan’s portfolio helped hedge an actuarial loss when interest rates began their downward spiral last year.
Speaker: Kevin Doran | Vice President, HR and Communications| PQ Corporation
Paul Bosse | Principal | Vanguard
CASE STUDY: Rolls-Royce
Rolls-Royce's Mike Elliott will discuss the history behind his company's adoption of its LDI strategy for its pension plan. He will outline the rationale for the key strategic decisions made and share how the LDI performance is being measured and monitored.
Speaker: Mike Elliott | North American Group Treasurer | Rolls-Royce
CASE STUDY: CBS Corporation
CBS has been a pioneer among plan sponsors in using customized “cash flow based” liability benchmarks for their DB plan. CBS’ Ken Hill will discuss the evolution of their benchmarks, the resulting alignment of interest with their investment managers, and various practical issues with using these types of benchmarks. He will also share his thoughts on various approaches to derisking the plan and reducing the pension surplus volatility.
Speaker: J. Kenneth Hill, CFA | Senior Vice President, Treasurer | CBS Corporation
Gary Knapp, CFA, FRM | Managing Director and Product Manager | Prudential
Glenn O’Brien | Managing Director | Prudential
CASE STUDY: United Technologies
During this case study session, Loomis Sayles’ David Waldman and United Technologies’ Charles Van Vleet will discuss the dynamics of liability driven investing. More specifically, they will touch upon the roles of fixed income in the context of an overall pension plan and how these roles have evolved over time.
Speaker: Charles C. Van Vleet | Director, Portfolio Investments | United Technologies Corporation
David Waldman | VP, Director of Quantitative Research Risk Analysis | Loomis, Sayles & Company, L.P.
PRESENTATION: Politics, Regulation and Pensions
Governments and pensions have always been closely interlinked, through: regulation, tax policy, direct sponsorship, and governmental impact on investment performance. This will be even more true in the next few years, as governments focus on cleaning up after the financial crisis and wrestling with the Euro Crisis, U.S. fiscal deficits, recessions, near recessions, and crucial upcoming elections. This presentation will focus on how to prepare for what’s coming out of Washington, Brussels and other capitals.
Speaker: Douglas Elliott | Fellow, Economic Studies, Initiative on Business and Public Policy |The Brookings Institution
PRESENTATION: Is LDI Really Happening?
Corporate pension sponsors have shown great interest in de-risking and LDI strategies. But are they really implementing them? And do they have the conviction to stick to their plans, especially in light of low interest rates and low funded status? In this session, we will review the LDI strategies that have been developed and discuss how plan sponsors and fiduciaries are managing the implementation challenges of these solutions. We will also review the ultimate end state for LDI, plan settlements, and the emergence of new opportunities in that market.
PANEL DISCUSSION: Derisking versus Rerisking
In this era of low interest rates and volatile stock prices – and continued pressure on funding status - it can be difficult to continue to implement a derisking strategy such as LDI. This raises the question of whether it is ever appropriate to rerisk. This panel discussion will debate the pros andcons of rerisking – when, why and how should a plan rerisk? Or should a plan sponsor stick to the derisking path it has adopted. The panel will also consider the future of LDI as a significant derisking strategy in the defi ned benefit arena.
WORKSHOP: Implementing a Custom LDI Solution
This session will cover the key considerations when implementing a truly custom LDI solution - one where the LDI benchmark is defined as the plan’s liabilities. This session will focus on addressing the key questions that arise as a result of moving away from implementing an LDI solution with market benchmarks towards implementing an LDI solution with an explicit liability benchmark. Based on our experience these key questions tend to be:
WORKSHOP: The Various Roles of Fixed Income in Pension Plans
Aligning the objectives of a portfolio with the specific role it is designed to play in an overall investment plan is one of the defining characteristics of liability driven investing. A typical investment plan decomposes assets into two groups: “return seeking” and “liability hedging.” The fixed income portion of an allocation is often associated with “liability hedging,” but it can in fact assume a variety of roles that cut across these two dimensions. Fixed income assets can serve as a hedge and provide diversification benefits to other portions of the plan, maintain a targeted funding ratio on a pro-rated basis, and help close funding gaps. Each role implies different return and risk tradeoffs, which must be considered in determining the optimal fixed income portfolio structure.
WORKSHOP: LDI: Where Do We Go From Here?
Liability-driven investing is an effective risk reduction tool for pension liabilities, but with low rates and tightening corporate spreads, many questions arise. Are there ways to enhance LDI returns? Are there limits to what LDI can achieve? Is the answer to increase credit risk in the LDI portfolio? This workshop will consider these questions as well as potential global factors like international credit risk and diversification and importantly, the 'end-game' —should you purchase annuities or "roll your own?"
WORKSHOP: Aligning Risk & Return Using LDI
This workshop will review a case study of a corporate defined benefit pension plan, comparing the funded ratio volatility and contribution volatility of the plan’s current investment allocation to a comprehensive LDI strategy. The workshop will then investigate the traditional methods of quantifying risk and offer some alternative measures. Finally, the workshop will construct a dynamic milestone plan, aligning the plan’s investment strategy and risk tolerance along an efficient de-risking path.
WORKSHOP: Hedging or Diversification: Which One and When?
A key tenet of investing is that portfolio diversification reduces risk. But a pension’s liability risk focus alters the usual equation casting doubt on the standard diversification rules. Liability hedging with bonds may offer a better risk solution, but is it iron clad? This session researches the pension perspective on diversification and its efficacy relative to hedging, and finishes with a look at strategies that efficiently remove risk in a low cost way.