LDI managers are seeing their assets under management dip slightly as long-duration bond returns have lingered in negative territory for years, and fully funded corporate plan sponsors no longer need to add assets to their liability-hedging portfolios or are transferring assets to insurance companies.

Liability-driven investing emerged as the key portfolio strategy among U.S. corporate plan sponsors who closed and/or froze their plans in the wake of the funding crisis that emerged following the dot-com recession of the early 2000s. Following the passage of the Pension Protection Act of 2006, meant to reform corporate pension funding, the global financial crisis of 2008 brought about another funding crisis.

As of Dec. 31, 2007, the average funding ratio among the 100 largest publicly traded companies with DB plans was 108.6%, according to Pensions & Investments’ annual analysis of 10-K filings. One year later, that average had plummeted to 79.6%.

The answer for many plans was to adopt LDI strategies, highly customized portfolios designed to match plan liabilities with long-duration bonds, the allocations to which would increase as funding improved. AUM for LDI managers has grown steadily during that time until this past year.

As of Dec. 31, U.S. tax-exempt institutional LDI AUM among managers that responded to the survey totaled $765.6 billion, down 2.4% from the year before for that cohort, according to Pensions & Investments data.

David Eichhorn, CEO and head of investment strategies at NISA Investment Advisors, the top-ranked LDI manager of U.S. institutional tax-exempt assets, said rising interest rates that have resulted in negative returns for long-duration bonds have kept assets under management down for many LDI managers.

For the one year and five years ended Dec. 31, the Bloomberg U.S. Long Corporate Bond index returned -1.9% and an annualized -1.8%, respectively, and the Bloomberg U.S. Long Treasury index returned -6.4% and -5.2%, respectively.

Eichhorn also noted that funding ratios, while healthy, have remained relatively steady for the last several years.

“A big driver of LDI assets historically was when there was a rate of change of funded status to the better, there would be flows,” said Eichhorn, “so that has been more modest. It depends, because every client is a different story with where they are in risk assets vs. hedges, but on average, that’s been more modest, more sideways in funded status.”

Eichhorn said, however, that NISA is seeing specific growth in the last year, being hired for 21 new completion mandates, including six new clients. Completion mandates typically use U.S. Treasuries and derivatives to adjust the interest rate risk of the plan’s overall fixed-income portfolio to be better aligned with the liability’s risk profile.

“For five to 10 years, there’s been an enormous growth in number of clients, assets and in programs,” he said.

As of Dec. 31, NISA Investment Advisors retained its spot as the top-ranked manager of U.S. institutional tax-exempt LDI assets under management at $210 billion, a 10.4% drop from a year earlier

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