Liability-Driven Investing (LDI) at Cardano

Cardano was founded as an LDI manager over 20 years ago, and we are still one of the largest LDI managers in Europe.

LDI helps stabilise a scheme’s funding level and protect members and sponsoring employers from unintended volatility. This is accomplished when trustees decide to invest a portion of scheme assets in carefully chosen Gilts and Gilt-based instruments so that assets move in-line with liabilities when interest rates and inflation change.

LDI at Cardano

It’s in our DNA

Cardano was founded in 2000 as a risk manager. Our contribution to the collective understanding of pension risk has improved outcomes for scheme members and sponsoring employers. We were one of the earliest adopters of LDI.

Solutions Oriented

We offer LDI in three ways: 

  

  1. On a standalone basis 
  2. Integrated with “buy & maintain” corporate bonds  
  3. As part of our comprehensive fiduciary management / OCIO service 

 

In all cases, we manage bespoke LDI portfolios for each client, avoiding the multi-investor pooled funds used by most pension schemes with assets of £750 million or less.

 

We use “funds-of-one”, which confer the benefits of a segregated LDI mandate and the operational and tax efficiency of a pooled fund.

Focused on You

Bespoke LDI portfolios have several important advantages over multi-investor pooled funds: 

  

  • More accurate hedge vs. scheme liabilities
  • More transparency
  • More frequent dealing and flexibility 
  • More efficient use of collateral, so assets can work harder

  

The limits of multi-investor pooled funds were highlighted

during 2022’s Gilts crisis. 

Sophisticated Reporting

Our LDI clients and their advisors have access to an online reporting suite, which includes a customisable summary of key metrics, including the hedge profile vs. its liability benchmark and levels of collateral. There’s additional “drill down” detail on individual holdings and counterparties.

 

Clients and their advisors have the same information available to our LDI portfolio managers.

 

The need for sophisticated LDI reporting was highlighted during the 2022 Gilts crisis when the inadequacy of multi-investor pooled funds’ reports left many schemes and their advisors to “fly blind”.

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Gilts Crisis

Fiscal policy announced by the Government in the autumn of 2022 surprised markets and pushed Gilt yields higher until the Bank of England intervened. Over several dramatic weeks, the plumbing of LDI arrangements was tested, revealing vulnerabilities in many multi-investor pooled funds. Some schemes lost their hedges or had to sell other assets to raise collateral at short notice.

Have schemes learned the lessons from the Gilts crisis?

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If you'd like a price or a plan…

We get it. The benefits of bespoke LDI must exceed incremental costs, if any – and the transition must be efficient.

If you share a small amount of information about your current LDI arrangements e.g. size of hedge, we’ll offer you our LDI fee and an indicative transition plan to help weigh the pros and cons.

Click here to request a price and a plan

Gilt market turmoil

As a result of the Gilt Crisis in 2022, pension schemes’ funding levels were impacted, hedges were reduced, and trustee governance models were tested. The Bank of England had to intervene in the gilt market to restore market functioning when sharp and rapid rises in gilt yields led to widespread selling of gilts by pension schemes’ LDI arrangements. As a result of these events, recommendations have been made by various industry and government bodies to improve the resilience of LDI to market events.

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