GLOBAL - Almost two-thirds of pension plans around the world are now using a liability-driven investment (LDI) approach, up from half of schemes a year ago, a survey has shown.
Investment services group SEI found 63% of pension funds now employ an LDI approach compared with 50% in 2010 and 20% back in 2007.
Jonathan Waite, director of investment management advice at SEI, said: “The ongoing funded status volatility of pensions has placed increased pressure on organisations to make investment decisions that match the assets to the plan’s liabilities.”
Out of the 37% of funds not using LDI, 23% said they were considering doing so next year. Only 14% were not considering an LDI approach, SEI discovered in its annual Global Quick Poll.
The poll covered 100 pensions executives from the US, Canada, Netherlands and the UK - none of which were institutional clients of SEI.
Responses also revealed that the main benchmark of successful pension management had changed over the last four years to “improved funded status” in 2011, from “absolute return of portfolio” in 2007.
On asset allocation, the survey showed long-duration bonds are still a popular LDI strategy, with 74% of funds using them in 2011, although this represented a significant drop from the 98% response in the 2009 survey.
Short duration cash management was used by 40% of funds, down slightly from 43% last year, but up markedly from the 26% recorded in 2009.
Investments in interest-rate derivates were at a low level, with 26% of funds using them, after 40% in 2009. Emerging market debt was used by 37% of respondents, up from 14% in 2009.
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