Institutional investors

LDI, basis risk, timing, and the swap spread June 2008 Joseph Glynn Senior Portfolio Manager, Overlay Services Liability-driven investing (or LDI) for defined benefit pension plans is a strategic decision. But, like any strategic decision, its implementation cannot be completely decoupled from tactical issues and, in particular, the question of timing. This Russell Research paper illustrates how time-sensitive factors, like the yield spreads of fixed income instruments, are important tactical considerations for investors contemplating a swap-based LDI program. 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 Please remember that all investments carry some level of risk including the potential loss of principal invested. 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. USI-3493			Request this research Printer friendly version of this page