TC Jefferson argues why the existence of an LDI team may have unintended benefits for asset managers looking to secure institutional AUM.

1. www.theplenumgroup.com
Liability Driven Investment – low margin, high barriers to
entry, why bother?
LDI, dominated by the big three of Blackrock, LGIM and Insight, is increasingly
considered low margin business. Numerous asset managers looking to grow their defined
benefit asset pool have considered entering the LDI space. Recently however some
managers have actively chosen not to dedicate resource into this space as the outlay
required and perceived return on this low margin business may not appear to make
commercial sense.
Is there a case for operating a liability driven investment practice?
At Plenum we believe so. The UK pensions market is so heavily intermediated by
consultancy firms that it is increasingly difficult to penetrate this space without support
and buy ratings from the consultants. For asset managers offering only “off the shelf”
products, securing such buy rating and developing the required relationships with
consultancy firms is a tough challenge. With an LDI practice comes a solutions team that
has expertise of both liabilities and assets (with the ability to develop bespoke solutions
for clients). Such capability goes a long way to raise a manager’s profile with consultancy
firms. Having secured relationships and buy ratings with consultants, the possibility of
penetrating this market becomes a reality. Once established in this space, managers can
then work to shift clients from the low margin standard LDI into LDI 2.0 or multi-asset
client solutions, as many of the more successful players are currently doing.
That is why, despite high barriers to entry and low margins, we believe an LDI type
solutions team is a key ingredient for any asset manager looking to penetrate the UK
defined benefit pensions market.
To discuss building up such a team please contact TC Jefferson who is responsible for
Plenum’s pension de-risking practice:tcjefferson@theplenumgroup.com
This Blog was originally posted on http://www.theplenumgroup.com/liability-driven-investment-%E2%80%93-low-
margin-high-barriers-entry-why-bother on September 29th 2011.
Plenum 2011 – Financial Services Executive Search