Insights

Cash balance plans are booming—but so are the challenges that come with hedging their unique liability profiles. Approaches to this dynamic range from the simple to the pragmatic to the precise. Although there is no silver bullet, we believe our experience working with cash balance plan sponsors provides a clear framework for evaluating the available approaches.

The total portfolio approach (TPA) has been the buzz of the asset allocation industry following a major pension plan’s recent move to replace its strategic asset allocation (SAA) model with a TPA. The announcement has reignited debate: Is TPA a genuine step forward for asset owners and managers, or simply a repackaging of ideas long familiar to the industry?

We assess how the latest escalation in the Middle East may affect the macro and market outlook—and stress the importance of a long-term view—in our new blog. While geopolitical events are inherently unpredictable, we believe their implications become manageable when investors are diversified, disciplined and focused on long-term outcomes.

New releases in AI models have prompted a reassessment of how resilient software firms are. For credit investors, the issue is particularly relevant: Software represents a meaningful share of US collateralized loan obligation (CLO) exposures. Understanding whether the perceived disruption risk is justified is therefore crucial when evaluating potential vulnerabilities and opportunities across CLO portfolios.

Agency floater issuance has surged in recent years fueled by demand from a variety of investor types. These bonds offer many benefits including short durations and the absence of credit risk—principal and interest are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Though they tend to be more structurally complex than competing floating rate alternatives, we believe they offer attractive value for investors willing to assume the unique risks inherent to this asset class.

As US securitized markets increasingly finance data centers, concerns about hidden risks are growing, with some market participants raising concerns about off-balance-sheet financing and structural risks. How worried should investors be? While we do see some risks beneath the surface that are important to monitor, we believe data center securitization can offer opportunity for investors.

Private credit has been in the headlines recently. In this blog, we address some of the misconceptions about how the asset class is rated and provide insight into how we navigate the complexities of private credit ratings.

Geopolitical events can be especially challenging for investors. They are often emotive, highly uncertain and prone to hyperbole in headlines—all factors that can lead to poor decisions. To impose discipline, we follow a 10-point guide for managing geopolitical risk that embodies the “prepare, don’t predict ethos.” This framework helps us assess, monitor and respond to geopolitical threats in a consistent, level-headed way and is designed as a timeless guide that investors can revisit as new scenarios arise.

The AI revolution will be debt funded, with a wave of issuance in public and private markets expected. We believe it’s not a question of which type of fixed income will see the supply increase. All debt markets are likely to be tapped. This step-change increase in fixed income net supply comes amid rising government spending, and its impact is unlikely to be confined to tech. AI debt will need to compete with government deficits—and the bond markets are already showing signs of discontent.

Ahead of each quarter’s MSCI World rebalancing, we assess the accuracy of our predictions for the prior quarter’s rebalancing and release our predictions for upcoming changes to the index. With the first-quarter 2026 rebalancing announcement set for February 10, we now look back at our fourth-quarter predictions and ahead at the approaching announcement. For the fourth quarter, our prediction accuracy score came in sold in an environment of heightened activity.

Greenland and the renewed strategic interest it’s drawing from the US highlights the return of great-power competition and the return of Realpolitik in international affairs. Using our “prepare, don’t predict” lens to managing geopolitical risk, we outline three plausible scenarios for Greenland’s geopolitical future, and consider their potential market implications.

As the scale and urgency of AI investment continue to accelerate, attention is now turning to future spending estimates and the necessary sources of financing to support this momentum in an environment where the need for capital is both vast and immediate. We believe private credit will play a crucial role in filling the projected AI financing gap, creating opportunities for investors even as the outlook for AI remains uncertain. 

Defined benefit (DB) pension plans have long relied on liability-driven investing (LDI) to manage risk and align assets with liabilities. As the landscape of DB pension plans continues to evolve, we are entering a new era: LDI 3.0.

Since the disputed 2024 election, President Maduro of Venezuela has not been recognized as the legitimate leader of the country by the US, EU or UK. While others will debate the rights, wrongs and legalities of the US intervention, we are concerned about the financial market implications where the initial reaction has been positive for Venezuelan assets and muted elsewhere.

While AI- skepticism runs high, there’s been a lot less investor focus on the implications should AI deliver. But AI’s potentially universal application and “agentic” ability to replicate human output hint at a far bigger impact that poses a potential risk scenario for the economy as AI delivers.

Advances in artificial intelligence (AI) are continuing to dominate headlines—and reshape the investment landscape. A trio of L&G investment experts recently recorded a webinar to discuss the wide-ranging implications of AI for investors, from the near-term market trajectory to its impact on economic growth and infrastructure spending.

We see a potential global regime shift, which our economists call the return of “realpolitik.” After decades of globalization and the spread of liberal democracy post the Cold War, we’re seeing countries turn inward, prioritizing power, security and self-interest over ideals and efficiency. 

Attention to absolute numbers of Gen Zers is more important than growth rates when it comes to determining where Gen Z is truly driving US apartment demand, a fact that developers in some areas appear to have misunderstood.

A paper that made headlines earlier this year suggested that predictable rebalancing strategies may cost investors several basis points of return. Our experience and analysis tell a different story.

Surprise IPO plans for Fannie Mae and Freddie Mac could reshape US housing finance. Amid the uncertainty, three guiding principles emerge, offering clues as to what lies ahead for investors and policymakers.

AI-related spending is already playing an outsized role in overall economic momentum and is implying a significant fixed income financing requirement, spanning private credit, securitized, and public issuance

We believe concerns about the private credit market are overblown and see reasons to have confidence that both investment grade (IG) and sub-IG private credit can continue to thrive.

We do not think 2025’s hiring slowdown will be reversed this Fall. A look under the hood at the data suggests a stiff challenge to the resilient labor market narrative, with meaningful cracks emerging. 

Investing like an insurer can potentially help plan sponsors preserve funding levels and grow a surplus, while retaining flexibility to pivot to a pension risk transfer down the road.

We believe a prolonged higher-for-longer rates regime is supportive of private credit, which we also view as relatively sheltered from recent macro volatility—at least in terms of direct tariff impact.

Diversification is supposed to be the only free lunch, but when historical relationships—like the traditionally inverse one between bond and stock prices—breakdown, public pensions must look at what else is on the menu. This roadmap may help.

Pension investors seeking ways to enhance yield, improve diversification and maintain liquidity in their end-game strategies may be overlooking a compelling asset class: US securitized. With a yield pick-up, low correlation to other fixed income and ample liquidity, securitized credit presents an attractive opportunity for portfolio construction.

We believe that DeepSeek’s groundbreaking method to raise performance could augur well for AI adoption. A cheaper product could encourage more users to harness the technology for profitable use. There could be clear benefits to the entire corporate sector should a productivity-enhancing technology become available at a significantly lower price.

Since LDI was recognized as a best practice for defined benefit plans, sponsors have evolved their investment strategies. Initially, they extended the duration of fixed income using longer duration benchmarks. The next phase focused on customizing Treasury and credit strategies to align with liability risk. Now, we are entering a new phase that asks, “How can we diversify our growing fixed income allocation?”

Office occupancy is changing due to evolving work-from-home (WFH) policies, affecting office property occupancy and rents. The impact of WFH on the apartment sector is less clear. WFH has driven population shifts from large US metropolitan areas to mid-sized ones, leading to increased apartment construction and excess supply. 

As a standalone asset class, commodities have recently been uninspiring to investors, even after the inflationary period that followed the pandemic. However, when we look at the combination of current market themes and historical contributions of commodities to a balanced portfolio, we see ample reasons to be allocated to this unloved asset class.

In short, investors have enjoyed ‘T-bill and chill’ for two years – but is this still true now that central banks have begun to cut rates? We believe investors should really be asking: is now the time to move away from cash?

After a summer where it has been anything but politics as usual in the US, the race for the White House is back to being a veritable coin flip. At a high level, risk markets have seemingly yet to take much notice of the preelection gyrations, although there are signs of sector rotations and reflation trades beneath the surface.

The perception of illiquidity in IG private credit is driven by the extreme demand from long-term buy and hold investors and most limitations on liquidity stem from bondholders lacking an interest in selling—stated simply, it is easy to sell but very difficult to buy.

In the last two years the Fed increased rates at the fastest pace in 40 years, which has led to a challenging environment for fixed income returns. However, our Short Duration Opportunistic Fixed Income (SDOFI) strategy is designed to preserve capital and produce positive returns across multitude of environments, where it has been in line with expectations since 2009.

As of March 2024, over 100 multi-employer plans have received funding and seemingly implemented (or are in the process of) an SFA-specific mandate. If our conversations and experience serve as a representative sample set, many of these portfolios are custom fixed income strategies, often cashflow-matching, that are built benchmark-agnostic. The question becomes, how do we benchmark these mandates?

The marketplace for passive investing has evolved to exploit inefficiencies in an attempt to maximize performance, but not all investors are aware. Our Index Plus strategy seeks to exploit these inefficiencies by implementing a low active risk approach.

The challenges of a half-century ago bear an uncanny resemblance to the risks that we face today. That being said, institutional investors may need to consider allocating to an alternative asset class to preserve portfolio returns. Using history as a guide, we believe commodities may be an appropriate fit.

The Special Financial Assistance (SFA) program may help many multi-employer plans avoid insolvency and extend retirement benefits for millions. Given this backdrop, many sponsors view this capital through a more conservative lens. Others take a more holistic approach and view their legacy portfolio in tandem with their SFA portfolio. Each sponsor will need to weigh these decisions within the context of their plan.

Today’s entry points into fixed income may provide investors with potential opportunities to build diversified, opportunistic and durable portfolios. But unpredictable markets and elevated economic uncertainty calls for an active and flexible approach to security selection and portfolio construction.

We believe put spread collars are a useful risk management tool in this market environment. We also remind plans to remember rho, too, because today’s elevated interest rates can make this classic equity protection strategy even more appealing.

The private credit market has generally been resilient this year. The investment-grade and crossover space has seen decent deal flow, pricing discipline, strong premiums and not forgetting a higher yield environment. Tighter credit conditions and bank retrenchment is likely to accelerate the shift towards private market financing, in our view.

The emerging battleground for retiree asset placement reinforces the necessity for advisors and solutions to remain flexible as the retirement world and wealth market  increasingly converge. It is crucial for a solution to be flexible enough to be implemented in both ecosystems in order to ensure successful utilization.

The recent turmoil in the banking sector serves as reminder that the roots of a crisis can often be traced back to losing sight of the basics. Over the past week, time tested principles have emerged from the shadows and returned to the spotlight.

To protect the hard-earned funded status gains of 2022, plan sponsors should explore the various hedging structures, including capitalizing on short-term tactical opportunities and establishing long-term strategies to shape the plan's funded status outcomes.

It's time for the Treasury to acknowledge that the reissuance of the 20-year Treasury might have been a failed experiment and should reconsider introducing a 50-year Treasury.

We discuss the opportunity to help ensure benefit security and financial viability for multi-employer plan participants and sponsors, as well as a practical approach for plans seeking relief.

Neaaz Mozumder and Andrew Howell of EDF talk about how to get business leaders to advocate for key policies and how to meet the growing demand for ESG-aligned investment options.

In the latest episode of L&G Talks Asset Management, Colin Reedie and Jason Shoup, Co-Heads of Global Fixed Income at L&G, discussed the benefits of thinking and acting globally. 

Emerging market debt (EMD) has become a fixture in insurance general account portfolios, with investors drawn in by the possibility of a capital-adjusted return pickup and potential diversification benefits. It can also fit well into insurers’ asset liability management. However, it is not a case of one-size-fits-all. 

Managing public pension plans in turbulent markets can be a challenge, especially when funding levels and cash flow pressures dictate tough decisions. In this piece, we introduce an investment framework to help with navigating a liquidity squeeze.

In an environment where it seems increasingly likely that the dual challenges of inflation and illiquidity will persist, liquid real assets may prove to be a critical component of any investor’s portfolio.

Diversification is supposed to be the only free lunch, but when historical relationships—like the traditionally inverse one between bond and stock prices—break down, public pensions must look at what else is on the menu. This roadmap may help.

The Trump administration is instituting policy changes that will have far reaching implications for much of the world. They span the domestic economy, society and foreign policy, and they are likely to have consequences for the macro outlook for emerging markets (EM).

Enhanced indexing offers potential outperformance through low risk methods that traditional passive managers forego. Selectively utilizing derivative exposures for passive investments can also at times add value in markets where the investor receives a material funding spread. However, the magnitude of the opportunities, particularly in derivatives funding markets, will vary across assets and time.

While we are generally supportive of portable alpha, clearly not all implementations are created equal. Partnering with a portable alpha manager who intimately understands the trade-offs inherent in the approach may afford distinct advantages for retaining as much outperformance as possible for the overall portfolio.

The US undoubtedly remains the dominant force in global markets, and for good reason. The economy is strong, and attractive alternatives – for now – seem few. Yet no narrative lasts forever, and it's especially important to question the narrative when a single thesis dominates. TINA has served investors well in recent years, but preparing for shifting landscapes is what separates reactive decision-making from thoughtful long-term strategy.

For plan sponsors that have introduced cash balance plans as an alternative to more traditional defined benefit plans, the challenges of hedging the interest rate sensitivities that these plans introduce are complex but solvable. We continue to believe that setting explicit interest rate and credit spread hedge ratios for cash balance plans is appropriate, and in line with our previously released research.

The trend toward LDI has accelerated as companies recognize that taking on non-core financial risk to leverage shareholder returns using the pension plan is less effective than leveraging returns in the core business. LDI can add value for all plan sponsors. For some plan sponsors, LDI is nice to have, for others LDI is critically important.

In “The Contribution of a Constituent Time Period-Asset Pair: Longitudinal Decompositions,” in the April 2024 issue, Revanta Pawar, Portfolio Manager, describes a new framework for isolating the contribution to a given portfolio metric volatility, for instance – of each of the constituent asset-time period pair building blocks that informs its measurement.

Interest in IG private credit strategies has been growing in recent years. Proponents of the asset class have always pointed toward the potential for yield enhancement, availability of structural protections and added diversification. 2024 could be the year where attractive market conditions intersect at the right moment within the evolution of DB plan sponsor’s LDI programs.

Thanks to the adoption of LDI, plan sponsors have become much more sophisticated in their approach to managing pension liabilities in the last ten years. This increased sophistication sharpens plan sponsors’ and investment managers’ focus on funded status outcomes.

In this paper, we outline our rationale and various implementations that we believe can help institutional investors meet the demands of their sponsoring organizations while potentially minimizing any trade-offs against long-term expectations for market risks and rewards.

Relative to public investment grade corporate bonds, LGIM America feels the attractive premium of investment grade private placements, paired with a potential decrease in tail risk and the diversification, could have positive benefits for institutional investors.

Navigating the uncertain times ahead can be aided by the usage of equity collar strategies that narrow the range of possible outcomes.

In this whitepaper, we present the strategic perspective of our philosophy when setting the hedge level of a DB pension plan.

Buy and maintain credit strategies are already providing companies around the world with more efficient and secure LDI solutions. LGIM America has a well-established track record in managing client funds in buy and maintain credit strategies.

Because cash balance plans with yield-based crediting rates operate differently than traditional plans, it is vitally important for investment strategy, contribution strategy and actuarial assumption setting to operate in a coordinated fashion to meet plan sponsor goals.

At LGIM America, we believe overlay manager diversification is likely inefficient and creates uncompensated risks. Using multiple overlay managers can result in increased costs, collateral inefficiency and higher governance burdens.

We believe dividing retirement into manageable phases allows the implementation of retirement income solutions that more effectively meet the evolving needs of today’s retirees.

Are bond ladders under-utilized in the defined contribution space? We think so. Our latest thought paper co-authored by Jimmy Veneruso, Senior Defined Contribution Specialist, and Arin Bratt, Multi-Asset Senior Research Analyst, delves into the role bond ladders play in the drawdown phase within the defined contribution space.

True retirement solutions involve not only solid investment products, but they must represent a holistic solution for participants. The solutions need to directly address the four fundamental risks participants face during drawdown in a clear and easy to understand way.

We share our insight on how successful retirement income solutions must address the mitigation of the real risks that participants are facing throughout retirement.

In our conversation with Anthony Woodside, we gather some insights on the direction of the market and consider what strategies may be appropriate given this economic backdrop.

Our conversation with Brianne Weymouth explores the unique characteristics of public pension plans and challenges they may face to meet their investment goals.

We discuss preparing for a plan termination by constructing a PRT-ready portfolio, the role of less liquid hedging assets such as private credit and deciding between a full plan termination and maintaining a self-sufficient fully hedged portfolio.

In a conversation with Joaquin Lujan and Neil Olympio, we explore the benefits and considerations of adopting an overlay, specifically how they can help achieve a plan’s unique objectives.

In our conversation with Ben Bartelt, we discuss the evolution of LDI and custom strategies and specifically, how they pertain to managing a cash balance plan.