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Defined Benefit Pension Schemes in the United KingdomAsset and Liability Management$
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Philippe-N. Marcaillou

Print publication date: 2016

Print ISBN-13: 9780198738794

Published to Oxford Scholarship Online: May 2016

DOI: 10.1093/acprof:oso/9780198738794.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 06 December 2021

Understanding Liability Driven Investment

Understanding Liability Driven Investment

(p.75) 4 Understanding Liability Driven Investment
Defined Benefit Pension Schemes in the United Kingdom

Philippe-N. Marcaillou

Oxford University Press

Building a growth asset portfolio which matches liabilities duration is very complex. LDI is an investment solution that invests some of the pension scheme’s assets to reduce the liability risks without reducing the expected return of the investment portfolio. This chapter explains how to assess liability risks, define a liability hedging strategy, and implement the best solutions. Based on a precise process, it shows how to build a liability benchmark portfolio and select the appropriate financial instruments in various risks environments and understand the consequences of decisions. The chapter explains how to select a LDI manager through a precise due diligence process, recognize tricks, and compile a report to monitor strategy performance. Readers will learn how to maximize a collateral management strategy and check the key points regarding the transition management of assets. Questions regarding LDI techniques, strategy, and monitoring will be answered, with examples, step-by-step calculations and illustrations.

Keywords:   collateral management, liability benchmark portfolio, LDI manager selection, LDI performance report, LDI solutions, liability hedging strategy, liability risks, liability valuation, transition management, yield curves

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