Concerns about cost and implementation and to some degree scepticism about the real benefits of these strategies, are delaying investors’ commitment towards LDI.
According to Leen Meijaard, head of Merrill Lynch Investment Managers (MLIM) Benelux, few pension funds, large and small, are already implementing LDI strategies in their investment portfolios, a fact that some might find “disappointing”. Speaking at a recent IQPC conference on LDI in Amsterdam, Mr Meijaard said: “In most instances [LDI implementations] are driven by the regulatory framework, pension funds that have a low coverage ratio and a sponsor who is not willing to do any funding to cover that low coverage ratio.”
MLIM has put in place LDI strategies for a number of pension funds, including the Stichting Philips Pensioenfonds – following last year’s acquisition of the internal management units of Royal Philips Electronics by MLIM.
However, according to Mr Meijaard, LDI is undoubtedly a trend that most believe is here to stay.
Under new regulatory requirements and the urgent need for pension funds to bridge the gap between assets and liabilities, it seems it might be only a question of time before more investors jump in.
According to a recent survey also by MLIM, 89 per cent of trustees of the UK’s largest pension funds have had discussions regarding LDI, of which 69 per cent are planning to implement it in the near future.
Because of this expected future growth, many asset management houses are developing their own LDI solutions, in many cases under the form of pooled funds.
“Our clients – insurance companies and pension funds – may or may not decide to engage in these type of strategies but they are certainly aware that this is an issue for them to address at a certain point,” said Fernando Ribeiro, head of investments at F&C Asset Management. F&C has just launched a series of funds that enable investors to hedge risk against interest rate maturities. These products have already attracted significant interest from Dutch clients.
PG
