Liability driven investment
What is Liability Driven Investing (also known as LDI)? Many institutional investors have obligations that go far into the future (e.g., retirement benefits that become payable when an employee retires in approximately 15 years and continues for the rest of their lives). In order to meet these obligations, these institutions have traditionally invested in a portfolio of assets which have the objective of maximising potential asset returns. If, however, returns are insufficient the institution must make up the shortfall. This asset-based investment strategy measures ‘success’ on how well the asset portfolio performs relative to market benchmarks, but has no relation to the liabilities.
LDI shifts the focus back to the liabilities (i.e., portfolio performance is measured relative to the liabilities rather than an arbitrary benchmark). This approach allows for better management of the risk that the portfolio fails to produce sufficient returns to meet the liabilities. It is therefore not simply a de-risking strategy but a holistic approach to managing active investment risk against specific liabilities.
RMB Asset Management’s LDI business unit is geared towards working with institutional investors to ensure that investors’ defined obligations are met. Our solutions hedge the impact of market movements on liabilities and thereby reduce surplus/deficit volatility.
RMB Asset Management (Pty) Limited (Reg .No. 1987/004655/07, VAT No. 4200149096, FAIS License No.623) is an Authorised Financial Services Provider in terms of the FAIS Act and an approved Retirement Fund Administrator (No.24/34).