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Barclays and Russell Investments introduce LDI Index Series

02 May 2012 15:00 GMT

Leading providers join forces to establish a new set of benchmarks designed to help U.S. pension funds improve the hedging precision of their LDI portfolios

New York, May 2, 2012 – Russell Investments and Barclays announced today the creation of a new set of investable liability-driven investment (LDI) fixed income benchmarks for U.S. corporate pension funds. The Barclays-Russell LDI Index Series combines the unique capabilities of two leading organizations to offer pension fund investors a standard set of rules-based and transparent fixed income benchmarks which are designed to offer better liability tracking properties than traditional benchmarks currently in use.

Pension fund investing in the U.S. has evolved in recent years toward a liability-driven investing approach. With more stringent pension funding rules, tighter accounting standards and a challenging investment landscape, more pension funds in the U.S. are de-risking and have taken initial steps into LDI by extending the duration of their fixed income portfolios with standard long-duration bond index products. While Barclays, a leader in fixed income benchmarks, and Russell, a recognized expert in LDI and a leader in multi-asset investment solutions, agree that existing benchmarks for LDI portfolios have been sound, they have not been designed to closely match interest rate, credit, and yield curve risks of specific pension plan obligations. This has driven a market need for a better set of benchmarks, which the two companies have worked together to address.

“In speaking with clients through LDI consulting and asset management conversations, it became clear that plan sponsors needed a way to more accurately hedge their liabilities, but they also still wanted a transparent and investable index set to benchmark their fixed income managers against. Currently available fixed income index products were not fully addressing those needs,” said Martin Jaugietis, CFA and Director of LDI Solutions at Russell Investments. “By collaborating with a leading fixed income index provider like Barclays, we are able to fill this gap.”

The Barclays-Russell LDI Index Series is available for a wide range of investors, including defined benefit pension plans, dedicated fixed income asset managers looking to broaden their LDI product suite, and plan sponsors with more than half of total pension assets in LDI fixed income that want a more appropriate measure of liability returns. The Series consists of six high quality, mostly corporate-bond-based, benchmarks with target durations of 6, 8, 10, 12, 14, and 16 years. Each LDI index is reconstituted annually back to the targeted maturity minimum range to reflect changes in market yields while minimizing turnover, and rebalanced monthly to remove bonds falling below the maturity threshold or quality standard and add newly issued bonds that qualify. Issuer concentration is reduced through a 2% issuer cap. When using the indices, investors will be able to select a single LDI index or a combination to most accurately reflect their specific liabilities.

“By better matching the risk and return characteristics of typical liability streams with a smart cash bond-selection strategy, the Barclays-Russell LDI Index Series is a useful performance target for investment portfolios designed to fund specific liabilities,” said Brian Upbin, Head of Benchmark Index Research for Barclays. “This rules-based index series will give asset owners, asset managers and investment managers a new portfolio benchmarking tool.”

For more information on liability driven investing and the Barclays-Russell LDI Index Series including construction and methodology, go to the Russell Indexes website, or Barclays Live. Index levels can be found on Bloomberg, and index constituents are available through the Barclays POINT portfolio & analytics platform as well as through other licensed redistributors.

About Barclays Index, Portfolio and Risk Solutions

The Barclays Indices platform has offered market-leading benchmarks and other index products since 1973, to meet the diverse needs of global investors including investment and market analysis of both alpha and beta sources, portfolio benchmarking and performance measurement, asset allocation, and the creation of index tracking funds and index-based structured products.

About Russell Investments

Russell Investments (Russell) is a global asset manager and one of only a few firms that offer actively managed multi-asset portfolios and services that include advice, investments and implementation. Working with institutional investors, financial advisors and individuals, Russell’s core capabilities extend across capital markets insights, manager research, Indexes, portfolio implementation and portfolio construction.

Russell has about $155 billion in assets under management (as of 3/31/2012) and works with 2,400 institutional clients, more than 580 independent distribution partners and advisors, and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.4 trillion in assets under advisement (as of 12/31/11). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than $1.5 trillion in 2011 through its implementation services business. Russell calculates more than 80,000 benchmarks daily covering 98% of the investable market globally, 85 countries and more than 10,000 securities. Approximately $3.9 trillion in assets are benchmarked to the Russell Indexes.

Russell is headquartered in Seattle, Washington, USA, Russell has offices around the world including Amsterdam, Auckland, Beijing, Chicago, Dubai, Frankfurt, London, Melbourne, Milan, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. For more information about how Russell helps to improve financial security for people, visit www.russell.com or follow us @Russell_News.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Russell Investments is the owner of the trademarks, service marks and copyrights related to its respective indexes. Russell’s indexes are unmanaged and cannot be invested in directly.

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The Barclays-Russell LDI Index Series, calculated by Barclays Capital Inc. and the Frank Russell Company (“Russell”), provides the liability driven investment methodology implemented in the selection criteria of the Barclays-Russell LDI Index Series without regard to any person. All rights in the Barclays-Russell LDI Index Series vest in Barclays and Russell. Any funds, products or other securities or investment vehicles using or based on the Barclays-Russell LDI Index Series are not sponsored, endorsed, or promoted by Barclays or Russell. The Barclays-Russell LDI Index Series are unmanaged indexes that cannot be invested in directly. NEITHER BARCLAYS NOR RUSSELL NOR THEIR AFFILIATES NOR THEIR LICENSORS SHALL BE LIABLE (INCLUDING IN NEGLIGENCE) FOR ANY LOSS ARISING OUT OF USE OF OR RELIANCE ON THE BARCLAYS-RUSSELL LDI INDEX SERIES BY ANY PERSON.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.


About Barclays

Barclays is a major global financial services provider engaged in personal banking, credit cards, corporate and investment banking and wealth and investment management with an extensive international presence in Europe, the Americas, Africa and Asia.

With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs approximately 140,000 people. Barclays moves, lends, invests and protects money for customers and clients worldwide.

For further information about Barclays, please visit our website www.barclays.com.