Liability-Driven Investment

From Analogue to Digital, Pensions to Robo-Advice

Dan Tammas-Hastings

• Publisher: Wiley
• Year: 2021
• Print ISBN:
  9781119441953
• Edition: 1
• eBook ISBN:
  9781119441960
• Topic: Business
• Subtopic: Finance
• Index: Business

Understand the investment template that dominates the pension industry

Liability-Driven Investment is the practitioner's guide to this increasingly popular investment template. Already the dominant framework for pension schemes in Europe and the UK, the LDI market is expected to grow significantly with the shift from Defined Benefit to Defined Contribution, and then into Digital Asset Management — or Robo-Advice. With an aging population and significant under-saving globally, more and more finance professionals will need to know how to work within and around the LDI framework; this book provides clear explanations for the framework's usefulness and growing popularity to help practitioners find their bearings in and around the LDI space.

The ultimate goal of LDI is to move beyond simple asset value maximisation and ensure that investors have sufficient funds to pay liabilities. This informative guide digs into that basic premise to show the various mechanisms, guidelines and practices that make up the framework's "working parts."

• Discover the optimal investment strategies in multiple assets classes
• Understand the key characteristics of the instruments used, including bonds, interest rate derivatives, and inflation linked products
• Learn why pension companies and individual investors are moving toward LDI
• Explore the ways in which the explosive growth of Robo-Advice will change retail investment

Finance professionals have long been accustomed to shifting landscapes — it is taken as a given that prevailing thought and attendant practices will change over time — but the rapid expansion of LDI has taken many by surprise. Having already been established as the dominant framework for pensions, it is clear that the emphasis on LDI will only continue to grow. Liability-Driven Investment tells you what you need to know in order to work effectively with LDI.

CHAPTER 1
Liability-Driven Investment and Multi-Asset Class Investing

MOVING BEYOND MODERN PORTFOLIO THEORY: INTRODUCING THE WORLD OF LIABILITY-DRIVEN INVESTMENT

In the last few decades, and the last few years particularly, volatile asset markets, shifting demographics, increased living standards and changing consumer expectations have created a demand for better savings products and resultantly more advanced financial risk management. These changes, coupled with a world which has an ageing population across many industrialised nations, but in which we anticipate secularly declining asset returns, has meant that there has been an increased focus on understanding investors' exact needs and the risks that they face.

Events such as the Global Financial Crisis or GFC, have meant that investors young and old have had first-hand experience of capital loss and the effect of market uncertainty on Savings Outcomes. The events of the crisis and its aftermath has changed permanently our estimates of society's ability and willingness to tolerate financial risk, as well as skewering central bankers and regulators belief in the efficiency of the capital markets. The Efficient Market Hypothesis (EMH), which had dominated the thoughts of academics, regulators, central bankers and investors alike, has now lost its primacy and the need for regulation to tilt markets towards better outcomes has become much more accepted. As a result of the large capital losses caused by the crisis, there has naturally been a need for a better understanding of what ‘risk’ means: where it resides and how best to manage it.

Particularly as it has b...

Table of contents

• Cover
• Table of Contents
• Title Page
• Copyright
• Dedication
• Preface
• CHAPTER 1: Liability-Driven Investment and Multi-Asset Class Investing
• CHAPTER 2: Introduction to Investment Risk
• CHAPTER 3: Introductory Steps into the World of Multi-Asset Class Investment
• CHAPTER 4: Building Investment Portfolios
• CHAPTER 5: Building Investment Portfolios
• CHAPTER 6: Moving Towards Liability Driven Investing
• CHAPTER 7: The Defined Benefit Pension Plan and Explicit Liabilities
• CHAPTER 8: ESG, Governance and the Pensions Industry
• CHAPTER 9: Moving Beyond Liability-Driven Investment
• CHAPTER 10: The Statement of Investment Principles
• CHAPTER 11: Liability-Driven RoboAdvice and the Development and Digitisation of the Industry
• Index
• End User License Agreement