Managing LDI portfolio hedges amid volatile markets – an overview

Rising interest rates have lowered future liabilities while decreasing LDI portfolio collateral levels. Here’s how schemes can seek to balance this scenario.

This year has been characterised by rapidly rising interest rates, rampant inflation and heightened volatility, with specific impacts for liability-driven investment (LDI) portfolios. In this guide, we consider what this means for defined benefit (DB) schemes – and outline the steps they can take to safeguard assets in such a market environment.

Levels of inflation have continued to rise since the start of this year, reaching highs not seen for several decades. The strength of energy prices, a tight labour market and supply-side bottlenecks caused by the pandemic have been the primary causes of the move, which has been exacerbated by the war in Ukraine.