Russell Investments and Barclays have joined forces to create the Barclays-Russell LDI Index series, a range of liability-driven fixed income benchmarks for US corporate pension funds. A source told SRP that in the long-run, the benchmarks will be considered for use with structured products.
"In speaking with clients through LDI [liability-driven investment] consulting and asset management conversations, it became clear that plan sponsors needed a way to more accurately hedge their liabilities, but they also still wanted a transparent and investable index set against which to benchmark their fixed income managers," said CFA and director of LDI solutions at Russell Investments, Martin Jaugietis (pictured). "Currently available fixed income index products are not fully addressing those needs."
Both firms found that existing benchmarks for liability-driven investment portfolios do not carefully meet interest rate, credit and yield curve risks of specific pension plan obligations and, in turn, together came up with the new series.
The series consists of six benchmarks with target maturities of 6, 8, 10, 12, 14 and 16 years. Each index is reconstituted annually back to the targeted maturity minimum range to translate market yields and minimise turnover. The indices are rebalanced on a monthly basis in order to remove any bonds falling below the maturity threshold and to replace them with newly-issued bonds.
"By better matching the risk and return characteristics of typical liability streams with a smart cash bond-selection strategy, the Barclays-Russell LDI Index series is a useful performance target for investment portfolios designed to fund specific liabilities," said head of benchmark index research at Barclays, Brian Upbin.