Managing LDI portfolio hedges amid volatile markets – an overview

Rising interest rates have lowered future liabilities while decreasing LDI portfolio collateral levels. Here’s how schemes can seek to balance this scenario.

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This year has been characterised by rapidly rising interest rates, rampant inflation and heightened volatility, with specific impacts for liability-driven investment (LDI) portfolios. In this guide, we consider what this means for defined benefit (DB) schemes – and outline the steps they can take to safeguard assets in such a market environment.

Levels of inflation have continued to rise since the start of this year, reaching highs not seen for several decades. The strength of energy prices, a tight labour market and supply-side bottlenecks caused by the pandemic have been the primary causes of the move, which has been exacerbated by the war in Ukraine.

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