Why a cashflow-conscious approach is increasingly important for liability management strategies

Over recent years, the improvement in funding levels for defined benefit (DB) pension plans has amplified the importance of implementing de-risking strategies to hedge liabilities and ultimately bringing plans closer to their goal of securing benefits. This can be via the transfer of risk in the form of an annuity or buy-out with an insurer, or in a ‘self-sufficient’ state.

Liability driven investment (LDI) is generally thought of as enabling schemes to bridge the gap in funding levels via the use of leveraged derivatives for hedging and growth assets to close deficits.

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