The Long View on Long Duration

Long duration investment strategies have become increasingly important for pension plan administrators seeking a tighter match between assets and liabilities. Implementation of effective long duration strategies gained greater urgency in recent years with the adoption of the federal Pension Protection Act, which sets minimum funding standards for corporate defined-benefit pension plans in the United States.

Long duration strategies

Capital Group has managed a government/credit-plus long duration strategy for more than a decade. We recently introduced a new long duration strategy focused on credit, partly to meet the needs of clients who require a tighter match between assets and liabilities. The existing long duration government/credit strategy is wider in scope, investing in corporate bonds and government securities for greater flexibility, but with a looser match to liabilities. Both strategies are offered in "plus" variations, expanding the universe of investments to include high-yield bonds.

The investment process

Our investment process incorporates top-down and bottom-up decisions. We manage sector allocation to corporate and government bonds as well as duration and yield curve positioning at the team level. Portfolio managers make individual decisions on industry allocation, credit quality distribution and issuer selection. We manage duration primarily through our corporate and Treasury investments and selectively use Treasury zeros, TIPS, interest rate swaps and futures based on our analysis of relative value and efficiency of execution.

Are Your Risk Tolerance and LDI Glide Path in Sync?

Objective factors play a crucial role in defining a sponsor's risk tolerance. Here we outline a quantitative approach for mapping risk tolerance to an optimal LDI glide path. (Dec 2014)

What is the optimal way to de-risk a plan?

The answer depends on the unique needs of each plan sponsor, and sometimes on other factors such as the presence of illiquid investments. We developed a quantitative framework to determine "efficient de-risking glide paths" designed to deliver an optimal risk/return trade-off that can take these factors into account. (Sep 2014)

What Is the Neutral Interest Rate?

LDI portfolio manager Wesley Phoa offers his take on the hotly debated topic of how structural changes may have shifted long-run rates. (Jul 2014)

LDI Credit Manager David Lee on opportunities in corporate bonds, M&A and valuations

In this recent interview, portfolio manager David Lee offers some insight into the changing market environment for corporate bond investing. (Apr 2014)

Tracking error constrained LDI mandates
Setting tracking error targets and well-defined investment guidelines in LDI mandates can help plan sponsors strike a good balance between risk controls and expected excess return. (Sep 2013)
Designing and implementing a
   tracking error constrained
   LDI strategy
Adding value in tracking error
   constrained LDI mandates

The Risks of Delaying Long Duration

Implementing a long duration strategy now may avoid potential future corporate bond scarcity. (Jun 2013)

New pension rules shouldn’t derail long duration strategies

This recent Viewpoint article delves into the complex issues surrounding recent amendments to the Pension Protection Act, including a provision that changes the methodology for calculating discount liability rates. (Sep 2012)

The Capital Group Companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed-income investment professionals provide fixed-income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

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