UK - Companies which offer Liability Driven Investment (LDI) solutions should carefully review whether they are making unrealistic representations, warns Max King, fund manager at Investec Asset Management.
According to King, LDI is a "popular nostrum" which should be put into perspective, as while LDI is a useful tool in retirement planning he believes pension funds should not get carried away in thinking it will actually solve their liability problems.
"I can see legal cases coming up when it turns out that the liabilities are not matched after all," King, joint manager of Investec's balanced managed fund, told IPE today.
King argues there is a danger of companies believing they have solved their liability problems by using LDI but could find a deficit still remains.
"I think anyone who is offering an LDI solution to customers should be talking very carefully to their lawyers, just to check that they are not making representations that are not realistic," he added.
King argues there are too many uncertainties to the concept of LDI so practical contribution and investment practice should be determined by the desired income on retirement.
"LDI is only as good as the assumptions underlying it, so if you change the assumptions you are going to change the conclusions," said King.
His comments come as both Credit Suisse and Blackrock announce the launch new LDI funds for UK occupational pension schemes.
None of the companies were immediately available for comment.