PT  - JOURNAL ARTICLE
AU  - Milla Krasnopolsky
AU  - Michael Ashton
TI  - Why Pairing LDI with De-Risking Glide Paths Produces Inferior Pension Fund Outcomes
AID  - 10.3905/joi.2018.27.supplement.058
DP  - 2018 Oct 31
TA  - The Journal of Investing
PG  - 58--64
VI  - 27
IP  - supplement
4099  - https://pm-research.com/content/27/supplement/58.short
4100  - https://pm-research.com/content/27/supplement/58.full
AB  - Combining traditional Liability Driven Investment (LDI) with funded status responsive de-risking strategies involves inconsistent treatment of risks in these two elements of what has become a popular pension strategy. This inconsistency causes irreconcilable conflicts in their execution and imperils the positive pension fund outcome. This article provides a critique of the combined LDI/De-risking Glide Path strategy as currently implemented by many pension plan managers and also provides an example of an alternative solution that improves pension plan outcomes. Our prescription for the pension de-risking glide path approach differs from conventional wisdom, resulting in faster de-risking, without undesirable market betas that are unrelated to the liability. It also avoids illiquid assets that pension funds often gravitate toward in their quest for returns, takes fewer credit risks, and seeks more alpha risks.TOPICS: Pension funds, risk management, portfolio construction