Joint research paper with Nomura
The Age of Peak LDI
13 Apr 2018 - Estimated reading time: 15 minutes
Liability Driven Investment (LDI) has been one of the dominant trends in UK Defined Benefit (DB) pension scheme investment during the past 15 years. But this trend may be coming to an end: the current pace of increasing hedging levels can only continue for, at most, three more years.
While the second half of the 20th Century could be characterised as the Age of the Equity Risk Premium, we would describe the period since the turn of the century as the Age of Unrewarded Risk – when increasingly yield risk was seen as unwelcome and schemes sought to hedge it. We believe the UK is now transitioning into the Age of Peak LDI - where schemes will only increase yield hedging at the margin or in an opportunistic manner.
Download our research report where we, along with Nomura, take a fresh look at the use of LDI to question whether we are in fact reaching a peak, and share insights into what the potential consequences could be for schemes and gilt markets.