Implementing LDI with swaptions - Russell Investments

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EXECUTIVE VIEW 3 Dealing with change: Applying the lessons of a thousand clichés By: Bob Collie, FIA, Chief Research Strategist, Americas Institutional INVESTMENT FOCUS 4 Implementing LDI with swaptions By: Lisa Cavallari, Director, Fixed Income Derivatives, and Martin Jaugietis, CFA, Head of LDI Solutions As the popularity of liability-driven investing (LDI) continues to increase, so does the number of ways to implement an LDI program. This article discusses one such instrument: an option on interest rate swaps, generally referred to as a “swaption.” It also describes how swaptions can fit especially well into a program designed to reduce risk in accordance with a liability-responsive asset allocation (LRAA) schedule. CLIENT FOCUS 8 Volatility-responsive asset allocation: The results in practice By: Bob Collie, FIA, Chief Research Strategist; Mike Sylvanus, Senior Investment Strategist; and Michael Thomas, CFA, Head of Consulting and Chief Investment Officer In last quarter’s Communiqué, Mike Thomas explained how volatility is itself variable over time and how an investment policy that responds to those variations might be designed. How would such policy perform? And what impact would following a volatility-responsive asset allocation strategy have on risk and returns? OPINION 11 Climate change and investments, or: “Why should I care?” By: Greg Liddell, Managing Director, Consulting & Advisory Services—Australasia Few issues have generated more skepticism than the subject of climate change. In this article, Greg Liddell outlines why it matters to fiduciaries. Q&A 12 The evolution of target date investing With Josh Cohen, Defined Contribution Practice Leader In this brief interview, Josh Cohen discusses developments and trends in target date investing. GREAT MOMENTS IN FINANCIAL HISTORY 14 The opening of the Lions Gate By: Aran Murphy, Product Strategist Russell Investments // Russell Communiqué p / 2
EXECUTIVE VIEW Dealing with change: Applying the lessons of a thousand clichés Dear Readers, Like it or loathe it, there’s no avoiding change. We are, of course, supposed to embrace it, to never stop learning, and to apply lots of other advice that has unfortunately lost its luster through overuse and passed into the realm of cliché—which doesn’t make it bad advice. So, although it wins us no points for the originality of the theme, change is the thread that runs through this issue of Communiqué. Change comes in many forms. We are slowest to accept change when it challenges our old way of seeing the world, when it calls into question long-held opinions or practices that have become part of our fabric. For example, for many years institutional investors saw strategic asset allocation as fixed asset allocation, but it doesn’t have to be. One of the biggest themes in our work with institutional investors over the past couple of years has been a much more dynamic approach to asset allocation—all the while retaining the discipline and long-term perspective that distinguish the strategic from the tactical. The catalyst that made this change possible was liability-responsive asset allocation: a dynamic—but strategic—approach that opened the door to the possibility of other forms of dynamic strategic allocation. In this issue, we pick up the theme of volatility-responsive asset allocation that was introduced in last quarter’s Communiqué and look at the evidence that adjusting asset allocation in response to market volatility can help in the management of risk. Lisa Cavallari and Marty Jaugietis take a look at swaptions, an emerging tool for LDI managers, describing how these instruments work and how they can help manage interest rate exposure for defined benefit plans. Our Q&A column turns to the world of defined contribution and looks at how target date funds (TDFs) are already changing as the first generation of TDF products is replaced by a more flexible design approach. This quarter’s Opinion article looks at another type of change—climate change—as Greg Liddell argues the case for why investors need to pay more attention than they do. Thank you for reading, Bob Collie Bob Collie, Chief Research Strategist, Americas Institutional p / 3
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Implementing LDI with swaptions - Russell Investments

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