BMO Global Asset Management has restructured its pooled liability-driven investment (LDI) funds, consolidating numerous single-maturity bucket LDI funds into a smaller number of liability-based profile funds.

These new funds replicated actual pension liability cashflows, which BMO said delivered “a highly accurate liability hedge whilst materially reducing the trustee governance burden”.

The profile funds also reflected how investment markets had evolved over recent years, the manager added.

Simon Bentley, head of LDI client portfolio management at BMO Global Asset Management, said: “As early as 2006, passive LDI became available via single-maturity funds. This meant schemes needed to buy multiple funds, each targeting a specific maturity point, to hedge liabilities. In practice, this approach has become cumbersome and inefficient.”

Previously an investor would have held up to 20 different “buckets”, he explained, for example 10 to cover inflation-linked liabilities with each fund spanning five years, and 10 to cover non-inflation linked liabilities.

With profile funds the same investor could now hold two funds to achieve the same outcome, one for the inflation-linked liabilities and one to cover non-inflation linked liabilities. 

BMO had 300 pension schemes invested in its profile funds before the restructuring.

BNY Mellon to launch corporate bond trading initiative 

BNY Mellon and HSBC are partnering with Algomi, a bond market infrastructure provider, to expand corporate bond trading opportunities for custody clients and the wider market.

The collaboration is expected to increase trading in the illiquid corporate bond market by giving clients the ability to make select holdings information available anonymously on an Algomi network of market participants.

Counterparties on the network would be able to query those bond holdings, which would alert the custody holder and give them the ability to instruct their dealer to trade on their behalf while protecting the client’s identity.

In a statement, those involved noted that turnover in the corporate bond market had shrunk at the same time as outstanding debt had grown by 75% in the last decade.

They said enhancing liquidity in the pool of custodial corporate credit holdings had the potential to significantly increase the number of possible trade matches and executed transactions.

BNY Mellon and HSBC expect to roll out the initiative to clients early next year, potentially with other custodians.

Michelle Neal, CEO of BNY Mellon Markets, said: “US companies rely on the corporate debt market for funding more than any other major financial zone in the world.

“By enabling the market to access potential trade matches with our custodial clients, we can play a significant role in not only increasing our clients’ access to liquidity, but in improving the infrastructure of the entire market.”