EUROPE - State Street Global Advisors has launched a flexible pooled vehicle, which lets schemes match future liabilities within different inflation environments.
SSGA joins players such as Merrill Lynch Investment Managers and Standard Life Investments, who offer liability matching. A Mercer Investment Consulting survey today said liability-driven investment would be one of the biggest growth areas for pension funds in 2005.
SSGA said its new 'Pooled Asset Liability Matching Solution' (PALMS) "enables pension funds to match their projected future liabilities within different inflation environments using a flexible and cost-effective pooled vehicle".
PALMS provides access to nine pooled funds holding inflation-linked swaps of different maturities of up to 40 years.
SSGA said that PALMS enable schemes "to adopt different liability matching strategies and re-spend the pension funds' risk budget for more reward". The new funds will be managed by SSGA's London-based global fixed income team.
"PALMS represents a generational change in investment management strategy for pension plans," said Alan Brown, group chief investment officer for SSGA.
"By recognising that liabilities, not market benchmarks, are the correct measure of a pension plan's ability to meet its obligations to pensioners, we can more closely match the client's liabilities over time, reducing the risk of over- or under-funding.
"We expect this concept to grow in popularity because it places more investment control back in the hands of trustees."
Joe Moody, senior investment manager/product engineer, global fixed income at SSGA, said the firm planned to extend the idea to Continental Europe: "This is a sterling based solution. We are well into the process of completing the finalised euro-denominated solution, which will be targeted at the European market. It will be launched end of Q1 beginning of Q2.
"Same concept, slightly different market, with slight variations because the European market is different to the sterling market. There's more liquidity in the European swaps market than there currently is in sterling but the maturity doesn't stretch out so long. And the regulation is more harmonised and structured in the UK than it is across Europe."
In October Standard Life Investments said it was targeting an extra one billion euros in assets under management at its new strategic solutions unit which focuses on liability-driven investments for institutions.
"It is increasingly recognised that the real need for investors with liabilities is for solutions which are individually designed to enable them to deliver on their promises at as low a cost as possible," it says.
Andrew Dyson, head of Merrill Lynch Investment Managers' institutional business in Europe, says his firm has seen a "huge explosion" of interest in the area in the last three to four months.
Meanwhile, State Street Corp has named Edward O'Brien as treasurer, reporting to chief financial officer Edward Resch. He replaces Stefan Gavell, who becomes global head of regulatory affairs.