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Incorporating structured credit into customized LDI portfolios

Incorporating structured credit into customized LDI portfolios

October 23, 2026 Fixed income

LDI strategies need consistent returns above liability discount rates to maintain funded status

Liability-driven investment (LDI) strategies face a variety of ongoing sources of funded status drag that reduce assets over time without necessarily creating a corresponding reduction in liabilities. They create an ongoing need for returns above the liability
discount rate simply to maintain funded status.

Structured credit offers more contractually defined returns than equities

Historically, many plans have relied on allocations to growth assets, particularly equities, to generate the additional return required to meet long-term objectives. While equities have generally provided attractive long-term expected returns, outcomes remain uncertain and can be heavily influenced by market timing and interim drawdowns.

We believe public and private structured credit may offer an alternative source of incremental spread and contractual cashflows that can complement a liability-hedging portfolio. Although they will not offer potential upside of equities, by expanding the opportunity set beyond traditional corporate bonds and Treasuries, we believe investors may be able to improve portfolio yield with an allocation to structured credit while maintaining a focus on diversification, cashflow and funded status stability.

 

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