De-Risking Pension Funds in a Low-Yield Environment

In today's low interest-rate environment, with the likelihood of higher future interest rates on the horizon, we have evaluated portfolio allocations that seek to decrease pension fund liabilities. Our analysis concludes: 

  1. In the current yield environment, there are better ways for pension funds to de-risk their portfolios than through liability-driven investments (LDI).
  2. Since yields are low and likely to rise in the future, absolute return strategies are better suited to de-risk pension portfolios.
  3. Pension plans using absolute return strategies would potentially have higher expected funded ratios and similar downside risks to pension plans using LDI-based strategies.

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