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Duration-enhancing overlay strategies for defined benefit pension plans

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Abstract:

Many large corporate and public pension trusts remain underfunded since the 2001–2002 recessionary periods. These plans are challenged by global demographic trends and the recent slowing economic conditions. We show that a special overlay strategy can improve performance and reduce risks by adding duration to the portfolio. The approach combines elements of liability-driven investing and asset liability management. Versions of the strategy are evaluated via historical data. In addition, the strategy is tested with a widely employed, forward-looking economic projection system.

Document Type: Research Article

DOI: http://dx.doi.org/10.1057/jam.2010.10

Publication date: June 1, 2010

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