PBGC throws in towel on liability-driven investment

The US Pension Benefit Guaranty Corporation (PBGC) has called time on its commitment to liability-driven investments (LDI) after admitting its current strategy has a less than one-in-five chance of meeting future funding needs.

The fund, responsible for the pensions of 1.3 million US workers and retirees, currently holds $55 billion in assets and plans to allocate 45% into fixed-income, a further 45% in equities and 10% in alternative investments in the hopes of better performance and lower risk.

The decision to dump the LDI strategy comes less than three months after Charles Millard was confirmed by the US Senate as the new director of the troubled PBGC. The LDI policy, which was implemented under the directorship of Bradley Belt, has been largely regarded as a failure, with the PBGC recording a deficit of $14 billion for 2007.

"We don't currently have the resources to meet all of our future commitments but this new investment policy will better manage our invested assets," said Millard, announcing the switch.

"Although the new strategy should generate higher returns, it also offers lower risk through broader diversification, and gives the PBGC a 57% likelihood of full funding within 10 years compared with 19% under the previous policy," he added.

The PBGC also stated that the new positions it plans to take in fixed-income, equities and alternatives would have outperformed its current LDI investments in 98% of instances over a 20-year rolling period.

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