Liability-Driven Investing

Focusing on the journey and the destination

Meeting your pension liabilities is a complex challenge. Success isn’t just a matter of achieving funding ratios over the long term, it requires navigating bumps along the way. The journey matters.

Conditions in the economy, markets, regulations, and plan sponsors’ businesses change constantly, and those changes need to be managed effectively. Many pension plans’ funding ratios have improved in recent years due to rising yields, strong equity performance, and a spike in pension contributions. Today, many plans must shift their focus to managing different risks and opportunities related to any number of considerations — from equity valuations to credit spreads to Treasury yield trajectories to economic conditions. At the same time, newly emerging strategies may help plans more effectively calibrate their risk and targeted return to their liabilities.

Plans need a guide for their journey: An experienced, practical asset manager that can develop solutions, implement them, and evolve them over time.

Seizing the moment

LDI experts Andy Hunt and Jonathan Hobbs discuss the client journey to full-funded status.

Seizing The Moment

Andy Hunt, FIA, CFA: At Wells Fargo Asset Management, LDI is a solution. It is a partnership between us and a client to help figure out what they need to do, what they want to do, and what is possible. And putting those three together and journeying with that client over time is what LDI is all about. To my mind, it's not a product. It's a product plus a service. And that service is an ongoing and evolving one.

Jonathan Hobbs, CFA, FSA: Lately when I’ve been talking to clients about their funded status, there’s this huge sigh of relief of the increase we’ve seen over the last couple of years. But there’s also some trepidation about what’s next and we want to help them achieve their goals which are to get over that final hurdle of full funded status. So we’ve been talking to them about things like increasing the level of precision in their hedging program, about diversification of some of the bonds they’re buying in their portfolios. And then also about how do you take the growth portfolio from where it has been with a higher risk allocation to something more risk managed for the future.

Andy Hunt: Pension plans have been on a journey for a number of years. The journey has evolved. So what was important three, five, seven years ago is different. And what's important today is getting the implementation right, seizing the moment, taking those steps that you've actually been wanting to do for many a year but have been maybe unable because the opportunity hasn't been there... And then going forward, it is about effective implementation, taking strides to remember that a good LDI solution first and foremost has to be a good asset portfolio as well as talking to and echoing the needs and the risks of your liability. And I think implementation of good asset portfolios is where the game is at right now.

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Your plan’s risk signature

Our expert team can work closely with you to understand your plan’s needs and goals --to help you develop efficient ways to strive to achieve them. We can work with you to adjust your approach over time, to help you keep your plan aligned with your funding and investment needs while responding to changes in markets and regulations. We use a diagnostic process that includes a comprehensive analysis of your situation with a fully rounded exploration of your liabilities and asset risks. It clarifies the issues to be addressed, builds a common risk framework, and unearths key questions — providing you and us with the insight we need to develop effective portfolio solutions.

Mapping the journey

Pension liabilities are about the long term, and so is our relationship with you. The insights we gain working closely with you enable us to create solutions targeted to your true needs and investment views. We work with you to build diversified, actively managed, opportunistic portfolio solutions with strong risk management.

Customize your investment design based on your plan’s liabilities and need for growth and de-risking

Engage over time with consistent monitoring and detailed reporting

Update and evolve your risk signature over time and work with you to adjust your portfolio when appropriate

Define your plan’s risk signature with a comprehensive asset and liability analysis

In working with us, you will be able to draw on resources from the full family of Wells Fargo Asset Management experts and investment strategies — including hedging, alpha/beta exposure, and fixed-income strategies managed actively in an effort to capitalize on the bond markets’ many inefficiencies. We work with you continually to reassess your needs, revise your plan, and implement solutions effectively.

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Your team of experts

Our LDI team is made up of seasoned, service-minded experts in liability-driven investing. You can rely on us to provide sound investment practices, to maintain vigilance through market changes, and to be agile in our responses.