Is liability-driven investing taking hold?

A new article in CFO Magazine looks at the progress—or lack thereof—in the adoption of liability-driven investing by pensions. Here is an excerpt:

In the past year or so, however, experts say they have seen companies becoming more reluctant to press forward with LDI strategies, for a variety of reasons.

For one, the equity markets’ relatively strong performance has created a siren call for plan sponsors that previously saw big losses. “Companies that are underfunded are more likely to stay with equities in hopes of investing their way out” of the situation, assuming they’re not in such poor condition that they can’t afford to take the risk, says John Ehrhardt, a principal with Milliman and author of its annual pension funding survey.

Milliman’s study this year (based on last year’s 10-Ks) hints at this. In 2009 pension equity allocations increased slightly, from an average of 44% to 46%, after several years of sharp declines. Some companies even made big increases in the category. Baxter International, whose pension plan was about 71% funded at the end of last year, boosted its equity allocation up to 69%, from 50% the year before, according to Milliman data.

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