Liability driven management

Portfolio management strategy of institutional investors with long term liabilities in which a transparent link is established between liabilities and assets and uncompensated risks are minimised.

The benchmark for an LDI scheme is to achieve returns in line with, or ahead of, their liabilities. The governance of schemes needs to ensure effective processes are in place for monitoring this objective and the risks taken to achieve it. As the benchmark depends on non-investment assumptions, such as longevity, that cannot be predicted with certainty there are risks that cannot be removed completely in the capital markets. An example is the risks from demographic assumptions proving to be wrong.