Russell Investments is making its first foray into fixed-income benchmarks in a partnership with Barclays Indices that involves the launch of indexes focused mostly on corporate bonds and geared mainly toward U.S corporate pension funds looking to hedge their liabilities.
The Barclays-Russell LDI Index Series is designed mindful of the estimated $1 trillion that some money management industry sources say has moved out of equities and into fixed income since the 2008 financial crisis.
The new “liability-driven investment” series—hence the LDI in the name—seeks to address more stringent pension funding rules as well as tighter accounting standards, Russell’s Seattle-based indexing unit said this week in a press release.
“In speaking with clients through LDI consulting and asset management conversations, it became clear that plan sponsors needed a way to more accurately hedge their liabilities,” Martin Jaugietis, director of LDI Solutions at Russell Investments, said in the release. “But they also still wanted a transparent and investable index set to benchmark their fixed income managers against.”
In partnering with Barclays, Russell is pairing up with one of the most venerable companies in the world of bond indexes. Barclays has been offering index products since 1973. Russell is an index provider specializing in equities, and also has a $155 billion asset management business that includes a number of ETFs.
According to Russell, some plan sponsors have more than half of their total pension assets in “liability-driven investment” fixed-income securities, and the new indexes should help those sponsors establish a more appropriate measure of so-called liability returns.
The series consists of six high-quality, mostly corporate-bond-based, benchmarks with target durations of six, eight, 10, 12, 14 and 16 years.
Each LDI index is reconstituted annually back to the targeted maturity minimum range to reflect changes in market yields while minimizing turnover.
Each is rebalanced monthly to remove bonds falling below the maturity threshold or quality standard and add newly issued bonds that qualify.
Issuer concentration is reduced through a 2 percent issuer cap.
Russell said that when using the series, investors will be able to select a single LDI index or a combination to accurately reflect their specific liability.