In order to meet new accounting requirements and to protect themselves against future volatility, financial institutions in many European countries have now adopted liability-driven investing (LDI) solutions.
Put simply, LDI solutions attempt to reduce balance sheet risk and thus the required solvency capital by matching liabilities with appropriate assets.
Although the principle sounds straightforward and simple, LDI solutions have not been without their critics. So, what are the pros and cons of LDI solutions for pension funds and how can they best be implemented?
On the basis of recent research by AEGON, we take a look at the hedge effectiveness of different LDI solutions and LDI solutions for inflation-indexed liabilities and suggest how best to protect your pension fund against market volatility.
Read more in the full article (6 pages).
