JLT Employee Benefits (JLT EB), one of the UK’s leading employee benefit providers and BMO Global Asset Management (BMO), an award winning Liability Driven Investment (LDI) manager, have announced today a new LDI fund.
Developed in collaboration between JLT EB and BMO, this is the first solution of its kind to combine leveraged liability hedging and synthetic equity exposure within a single capital efficient fund. Although similar strategies have been used for many years by the largest pension schemes, until now they haven’t been available in a single pooled fund to enable small and medium sized schemes to hedge risk efficiently and maintain or increase equity exposure, via equity futures contracts, at the same time.
This innovative new fund provides two times leveraged exposure to real rates with one times synthetic equity exposure using a shared collateral pool. This benefits UK Defined Benefit (DB) pension schemes by allowing them to hedge interest rate and inflation risk without foregoing equity returns, which are often needed to help close funding gaps.
The new fund combines the best aspects of BMO’s Dynamic LDI Funds, which enable pension schemes to benefit from dynamic hedging instrument selection, with passive equity exposure via exchange traded equity futures.
Jig Sheth, Head of Strategy at JLT Investment Consulting, commented: “This innovative new solution will enable DB pension schemes to significantly reduce their liability risk, whilst maintaining exposure to growth assets that are needed to reduce funding deficits – all in a simple, cost effective, and low governance pooled fund.
“Furthermore, by hedging two pounds for every £1 invested, it also allows for greater diversification away from equities by freeing assets to invest elsewhere. Now the best aspects of liability hedging utilised by the largest and most sophisticated pension schemes are accessible to pension schemes of all sizes, without the need to reduce the total equity allocation.”
Greg Skinner, Head of UK Institutional & Consultant Relations at BMO Global Asset Management, said: “The recent increase in pension scheme deficits has renewed the focus on liability risk management. However, with increased deficits many schemes cannot afford to reduce their growth allocation. By investing in this fund clients can achieve a meaningful increase in liability hedging without sacrificing their return expectation.
“Combining Dynamic liability hedging with synthetic equity exposure is something we have been doing for many years. This innovative solution brings two tried and tested investment approaches together in a straightforward manner, which makes the strategy accessible to pension schemes of all sizes.”
Notes to Editor
JLT Employee Benefits
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About JLT Employee Benefits
JLT Employee Benefits is one of the UK's leading employee benefit providers offering a wide range of benefit and pension services, including administration, actuarial and pension consultancy, investment, Self Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSASs) administration, flexible benefits, healthcare, benefit communication and financial education.
JLT Employee Benefits employs over 2,200 professionals throughout the UK and in 2013 had revenues of £172m in UK & Ireland.
Pensions and employee benefits companies within the JLT Employee Benefits group of companies include: JLT Benefit Solutions Ltd, Profund Solutions Limited, JLT Wealth Management Limited, JLT Investment Management Limited and Independent Trustee Services Limited. JLT Employee Benefits is part of Jardine Lloyd Thompson Group plc.
About Jardine Lloyd Thompson Group plc
Jardine Lloyd Thompson is one of the world's largest providers of insurance and employee benefits related advice, brokerage and associated services. JLT's client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.
JLT is quoted on the London Stock Exchange and owns offices in 39 territories with some 9,000 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.
About BMO Global Asset Management
BMO Global Asset Management is a global investment manager delivering service excellence from our four major investment centres in London, Toronto, Chicago and Hong Kong operating in 24 cities in 14 countries with more than £160 billion in assets under management (31 March 2016). It includes a network of world-class boutique managers: BMO Real Estate Partners, LGM Investments, Monegy Inc., Pyrford International Ltd., and Taplin, Canida & Habacht LLC.
BMO Global Asset Management is a signatory of the United Nations-supported Principles for Responsible Investment initiative (UN PRI).
It is part of BMO Financial Group (NYSE: BMO), founded in 1817 as the Bank of Montreal, a fully diversified financial services organisation and is one of the largest banks in North America by assets with C$681 billion as of April 30, 2016, and over 45,000 employees.
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