Liability-driven investing
Investing with the liabilities as the benchmark: a hedging portfolio matches their interest rate sensitivity, and a return-seeking portfolio aims to close any funding gap. Success is judged on the surplus.
Where you will meet it
Liability-driven investing appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain the approach known as liability-driven investing
“Liability-driven investing (LDI) builds the asset portfolio around the size, timing and interest-rate sensitivity of the liabilities it must fund, rather than around a market index.”
- Discuss the investment policy approaches adopted by institutional investors
“Liability-driven investing ties the portfolio to liabilities, typical of pensions and insurers, often with a hedging portfolio and a return-seeking portfolio.”
Practise it
Practise liability-driven investing until it is automatic: questions that explain every wrong option.
Take the free diagnostic →