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The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
When corporate defined benefit (DB) plans move closer to their end state, with larger allocations to long corporate bonds, they may find their liability-hedging portfolio is a little out of tune with their evolving priorities. We think many plans in this position will want to seek more diversified liability-hedging allocations, while still preserving the liability-relative match and avoiding excessive funded-ratio volatility.
Taking a page out of the classic rock songbook, we’ve compiled a liability-hedging diversifiers “playlist” — a set of asset classes and strategies that our research suggests may harmonize well with four common objectives of plans approaching the end state:
In this paper, we consider the potential benefits, risks, and other implications of adding investments from our playlist to a liability-hedging portfolio. As we note, some of the investments on the list can potentially address more than one objective and, in fact, we would expect many plans to develop their own liability-hedging “mix tape.” We wrap up the paper with thoughts on allocation sizing and other implementation considerations.
To read more, please click the download link below.
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