Strategic Investment Group

Infrastructure and LDI

June 2008

Over the past several years, plan sponsors have begun shifting their investment portfolios to liability-driven investment (LDI) strategies. A primary objective of many LDI strategies is to reduce the mismatch between the duration, or interest rate sensitivity, of the plan liabilities relative to plan assets. This objective is usually met by the creation of a high quality, long duration bond portfolio. However, a bond portfolio will not effectively cover the risk associated with the impact of inflation on the plan’s liability. Therefore, plan sponsors must also seek to match the inflation sensitivity of portfolio assets to pension liabilities.

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