Institutional investors

Liability–based benchmarks for fixed income mandates September 2010 Bob Collie Managing Director, Investment Strategy & Consulting As defined benefit plan management evolves and the practice of liability–driven investing grows, we may see the emergence of a new type of fixed income mandate, one whose benchmark is directly defined in terms of a liability rather than in terms of a specified set of assets. To what extent is the LDI mindset of investment practices changing? What does this mean for investors and investment managers? This paper answers these questions and addresses: Why investors are considering this approach, How the right investment instruments aren't always obvious, and Practical issues to be resolved. Request this research A note about our research Our proprietary research is made available to our institutional clients, and many of these published papers are available to other institutional investors as well. If you are not a Russell client, but are an institutional investor, we welcome you to request this research piece. We only require your contact information on a short request form. For more information about our research, please contact David or Gerry:     West Coast David Rothenberg Managing Director 866-926-5934 East Coast Gerry Lillis Director 866-459-4128 Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Liability Driven Investment (LDI) strategies contain certain risks that prospective investors should evaluate and understand prior to making a decision to invest. These risks may include, but are not limited to; interest rate risk, counter party risk, liquidity risk and leverage risk. Interest rate risk is the possibility of a reduction in the value of a security, especially a bond or swap, resulting from a rise in interest rates. Counter party risk is the risk that either the principal or an unrecognized gain is not paid by the counter party of a security or swap. Liquidity risk is the risk that a security or swap cannot be purchased or sold at the time and amount desired. Leverage is deliberately used by the fund to create a highly interest rate sensitive portfolio. Leverage risk means that the portfolio will lose more in the event of rising interest rates than it would otherwise with a portfolio of physical bonds with similar characteristics. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Date of first use: September 2010 USI-7760-09-12			Related information Liability-responsive asset allocation Printer friendly version of this page