Using LDI can reduce risk without compromising returns

Traditionally UK pensions schemes have tried to reduce risk by switching equities to bonds but this can also reduce long-term returns so they should consider using liability-driven investment

"It's only when the tide goes out that you learn who's been swimming naked." I'm sure that Warren Buffett did not have UK defined benefit pension schemes specifically in mind when he said this, but the quote is apt here nonetheless. Traditionally, UK pension schemes have had large holdings in equities - particularly UK equities. It is not the volatility itself that causes problems: when the stock market is rising, volatility is no problem. It is only when the market falls and the tide goes out that some pension fund trustees are left with blushes. The bull markets of the 1980s and 1990s w...