Advanced Factor-Based Liability Hedges

Philosophy

Investing is anything but static. Markets change. Investment objectives change. In the world of Liability Driven Investing (LDI), we believe interest rate risk management is both factor-based and dynamic in nature. We realize clients' objectives evolve as they achieve various funding thresholds and as capital markets change; helping them manage balance sheet volatility is of paramount importance.

We embrace this dynamic nature of investing by focusing on modern factor-based investing, extending its application to fixed income liability hedges and liability-centric capabilities, in general. We are committed to industry best practices in the areas of actuarial study integration, client-specific liability based benchmark development, multidimensional factor-driven interest rate risk management1, sequential portfolio de-risking2, and extensive stochastic analysis3.


Process

Liability Driven Investing

Our modular approach to liability-centric investing provides flexibility and consistent discipline for our customized services. We provide client-specific analyses by incorporating actuarial studies into the construction of a custom, investable liability-based benchmark as well as the development of a sequential de-risking strategy/glide path for our fixed income liability hedge portfolios.

Our process is adaptive in nature as pension funding and interest rate thresholds are met over time. Coordination with plan-level ALM studies, as well as ongoing portfolio monitoring and rebalancing, provides disciplined adherence to a client’s liability hedge strategy and sequential de-risking.

While our preference is for factor-based strategies, which we believe are the most effective ways to hedge pension plans' liabilities, we also offer traditional fixed income capabilities that include Duration, Convexity and Key Rate Duration hedges that can be constructed on either a complete or partial portfolio basis.

1 Multidimensional factor-driven interest rate risk management refers to managing interest rate risk by evaluating a series of underlying fundamental factors that explain substantial variation of fixed income yield curves/term structure. The most common among such factor are 1) yield levels, 2) slope and 3) curvature level of the yield curve.

2 De-risking is a general term in asset/liability management referring to strategies that better match the interest rate sensitivities of assets to liabilities and therefore reduce the risk of assets and liabilities not moving in the same direction when interest rates change; however, the term in no way implies the removal of risk imbedded in assets on a standalone basis when liabilities are ignored.

3 Stochastic analysis is a form of financial modeling that incorporates a series of input variables and evaluates a large array of potential scenarios based upon randomly selected combinations of these variables. Results are typically expressed on a probabilistic basis, incorporating various thresholds e.g., 95% probability of occurrence.


IMPORTANT DISCLOSURES

The content in this section of the website is for the use of institutional investors only. The products and services discussed herein are not suitable for, or to be relied upon by, any other investors.

The content on this site is provided as general information only and should not be construed as an offering of advisory services or a recommendation to buy or sell any security or financial instrument by PNC Capital Advisors, LLC.

PNC Capital Advisors, LLC is an SEC-registered investment adviser, offering an array of investment strategies. Registration with the SEC does not imply any level of skill or training. PNC Capital Advisors, LLC is an indirect subsidiary of The PNC Financial Services Group, Inc. PNC Capital Advisor’s strategies and the investment risks and advisory fees associated with each strategy can be found within Part 2A of the firm’s Form ADV, which is available at pnccapitaladvisors.com. PNC Capital Advisors, LLC claims compliance with the Global Investment Performance Standards (GIPS®). To receive a list of composite descriptions of PNC Capital Advisors, LLC and/or a presentation that complies with the GIPS® standards, please send an email to Compliance at pcacompliancegroup@pnc.com.

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INVESTMENTS: NOT FDIC INSURED - NO BANK OR FEDERAL GOVERNMENT GUARANTEE - MAY LOSE VALUE