Purpose-driven investing for DB pension plans

A new investment framework to balance risk and growth.

Highlights

  • Interest rate movements present a narrowing window of opportunity.
  • What is de-risking, and what traditional approaches are available?
  • Choosing the right approach: CDI or LDI?
  • Purpose-driven investing: Liability risk management and growth portfolio
  • De-risking in practice

Choosing the right approach

Whether CDI or LDI (or a combination of both) is optimal depends on a number of factors, including the status quo, overarching objectives and restrictions of the pension plan. However, there are a few decision parameters that pension plans can use as a guide.

The below guide is not exhaustive but based on our discussions with pension plans.

Figure 3: LDI or CDI?
Table showing the decision parameters for LDI and CDI including valuation basis for liabilities, IFRS funding level, Cash Flows and implementation complexity.

  • Pension plans do not need to make an either/or decision between LDI and CDI, because a combination of both is possible (and often preferable). The design of de-risking solutions depends on the pension plan's status quo, as well as the investment objectives and restrictions.

Source: Fidelity, 2024. For illustrative purpose only.

 

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