Zurich-based index provider Stoxx is to launch the iStoxx RiskFirst LDI Index family, providing a range of benchmarks for liability-driven investment (LDI) portfolios.
Matteo Andreetto, chief executive officer, Stoxx.
Stoxx, which is a leading provider of indices to the ETF industry, has partnered with UK-based RiskFirst to develop the family.
RiskFirst is a provider of risk analytics for the defined-benefit pensions market.
Matteo Andreetto, CEO of Stoxx, commented, “With our new LDI index offering we are addressing the challenges of a £1 trillion market by providing independent benchmarks for liability-driven investments. Our LDI indices will support pension scheme trustees and consultants in their efforts to select, monitor and challenge LDI managers. This is further proof of our innovative approach to tackle market inefficiencies with transparent investment tools.”
Each index is constructed using a blend of corporate and government bonds denominated in pounds sterling. Four different sets of indices are provided: nominal bond indices, inflation-linked bond indices, blended indices and non-gilt indices.
The indices have been designed as flexible, investable building blocks for LDI portfolios
Stoxx will calculate a range of indices based on 12 profiles, capturing member type, duration, type of indexation (pre- and post-retirement), interest rate and inflation sensitivity and a tax-free cash component of typical UK pension schemes.
The indices, which are rebalanced on a quarterly schedule, harness the capabilities of RiskFirst’s core product – Pfaroe – an information platform for the analysis and risk management of defined benefit pension plans. Each index is built using RiskFirst’s proprietary cash flow matching model, and certain key features of LDI portfolio construction, such as rebalancing between real and nominal exposure, are embedded in the index family.
Matthew Seymour, CEO of RiskFirst, said, “The set of indices we have developed in partnership with Stoxx are a major leap forward, providing improved governance and increased accuracy in a cost-efficient solution. PFaroe is rapidly becoming an industry standard for the modelling of pension plans and therefore offers us unique insight into the behaviour of pension plan cash flow profiles at a very granular level. When combined with STOXX’s extensive experience in designing innovative and objective investment benchmarks, the result is a set of indices that deliver great value to UK pension plans.”