Capital Group Cos. Inc. hired a top liability-driven investment executive — a former key player from BlackRock Inc., one of the largest LDI players in the U.S. — to spearhead the expansion of its own LDI business.
Gary Veerman, Capital Group's new head of LDI solutions, joined Cap Group in October, attracted by the opportunity to build his new firm into a major LDI player. At BlackRock, he was a managing director and head of U.S. LDI solutions from 2014 to early 2017.
In an era when many active managers have seen outflows to passive shops, LDI is seen as an area of growth for money managers. LDI strategies are typically used by corporate defined benefit plans, which are often closed to new participants and frozen, to manage risk. As plan funded status rises, a common LDI investment strategy is to replace equity exposure with long-dated bonds to reduce market volatility and to ensure current and future plan liabilities are paid.
BlackRock is ranked third in the U.S. LDI market, with $71.2 billion in assets under management in LDI strategies as of Dec. 31, 2016, show Pensions & Investments data.
A BlackRock spokeswoman, who declined to be identified, said after Mr. Veerman's departure the company had promoted Matthew Nili to managing director and head of U.S. liability-driven investing. Mr. Nili had been a team member on BlackRock's client solutions team, on which he still serves.
BlackRock CEO Laurence D. Fink said in an earnings call with analysts on Oct. 11 that BlackRock saw $37 billion in institutional fixed-income inflows in the three months ended Sept. 30, which were "driven by significant client demand for LDI strategies."
By comparison, Capital Group is a relatively small LDI player with $6.8 billion in LDI assets under management as of Dec. 31, show P&I data. (The top two U.S. LDI managers were NISA Investment Advisors LLC with $97.4 billion and PIMCO with $94.8 billion, P&I data show.)
While Capital Group is ranked 18th in the P&I data, Mr. Veerman said his new firm is committed to building scale and joining the ranks of much larger LDI managers. Capital Group, never has had a senior executive dedicated to running LDI strategies prior to Mr. Veerman. Capital Group officials say LDI previously was handled by an investment committee. But the firm has run LDI strategies since 1998 and Mr. Veerman said he is taking over at an organization that he is taking over at an organization that has already been successfully running those strategies.
"If you have got the blocking and tackling done correctly — the fundamentals right — then you're on the right track to building a successful business," he said of Capital Group's LDI business.