Sage Introduces LDI Strategies for Small Pension Plans

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Jun 16, 2014, 09:00 ET

AUSTIN, Texas, June 16, 2014 /PRNewswire/ -- Sage Advisory Services, an Austin, Texas-based asset manager, has created the first customized liability-driven investment (LDI) solutions specifically targeted at small pension plans. The use of these important risk management strategies had previously been offered by the world's largest asset managers almost exclusively to major pension plan sponsors. Through the use of fixed income ETFs, Sage is now offering smaller pension funds the ability to create an asset mix that closely resembles their liability streams. This minimizes the volatility of plan funded status, an important risk measure for the plan sponsor.

Sage is targeting the more than 15,000 defined benefit pension plans in the US with between $1 million and $10 million in assets, representing approximately 40% of all single-employer plans. It is able to provide an efficient solution for this under-served client base through the use of ETFs. This enables them to closely match the risk profile of buying individuals securities, but at a cost-effective price point, and on a smaller scale. Historically, small pension plans have had to solely rely on asset allocations that bore little resemblance to their liability streams.

To achieve its goals, Sage creates a portfolio of credit and government bond ETFs that closely match the duration, yield to maturity, and option-adjusted spread of the liability benchmark. It adjusts the portfolio monthly to reflect changes in the liabilities and the discount curve.

Traditional cash bond LDI strategies assemble a portfolio of high-quality corporate and government bonds to match and move in line with the present value of a plan's liabilities, which are valued using a high-quality corporate bond curve.

"Through our depth of experience in ETF-based solutions and liability driven investing, Sage can deliver customized solutions for clients of any size," said Robert Smith, the chief investment officer at Sage. "We focus on purpose-driven investing, and a well-managed ETF-based LDI portfolio is the ideal solution for small defined benefit plans."

"With market constraints on small portfolios' access to diversification, customization and liquidity, it is challenging for core fixed income and generic long duration fixed income strategies to meet small plans' de-risking goals," said Alex Pekker, VP of Quantitative Analysis & Research at Sage.

Sage provides daily online access to holdings, characteristics and performance as well as custom monthly and quarterly portfolio statements. These reports provide plan sponsors and investors with a full-spectrum view of the performance of the ETF-based LDI strategy relative to their custom liability benchmark characteristics.

Sage Advisory Services is a pioneer in investment solutions. Sage began offering asset/liability management services to its clients in 1999 and continues to evolve its liability driven investment strategies to match clients' unique regulatory and liability challenges. It was among the first institutional asset management firms to launch an all-ETF investment strategy in 2002.

About Sage Advisory Services
Sage is an independent investment management firm headquartered in Austin, TX, that serves the institutional and private client marketplace with traditional fixed-income asset management, global tactical ETF strategies and liability-driven investment solutions. As of 05/31/2014, Sage manages and advises $10.6 billion in client assets. Please visit www.sageadvisory.com for more information.

SOURCE Sage