STOXX and RiskFirst address the challenges of a £1 trillion market by providing bond indices for liability-driven investing   iSTOXX Risk First LDI Indices can help pension trustees to address the challenges posed by liability-driven investing by improving manager monitoring and portfolio construction.

Key benefits of iSTOXX RiskFirst LDI Indices

• The LDI bond indices serve as an independent point of reference for the UK’s defined benefit pension industry.

• The indices function as flexible, investable building blocks for LDI portfolios.

• A sophisticated methodology allows pension schemes to better match assets and liabilities over time.

• The bond indices support pension scheme trustees and advisors in their efforts to select, monitor and challenge LDI managers.

Key features of iSTOXX RiskFirst LDI Indices

• STOXX, in collaboration with RiskFirst, calculates a range of LDI bond indices that match a wide selection of UK pension scheme liability profiles.

• The indices track the performance of corporate and government bonds denominated in GBP.

• Four different sets of indices are provided: nominal bond indices, inflation-linked bond indices, blended indices and non-gilt indices.

• The indices are constructed using a proprietary cash-flow matching model that incorporates best-in-class LDI techniques.

• Certain key features of LDI portfolio construction, such as rebalancing between real and nominal exposure, are embedded in the index to offer a truly differentiated LDI solution.

• The indices combine STOXX’s real-time fixed income index calculation capabilities with a unique set of data provided by RiskFirst.

The unspoken challenges

Current LDI practices pose a significant risk for pension trustees. While existing approaches do manage interest rate and inflation risks that UK pension schemes face, the absence of an independent and robust LDI benchmark creates a governance risk for trustees. Simple questions pose a challenge for trustees engaged in LDI:

• How can trustees independently assess the performance of their LDI manager?

• How can trustees compare the performance of one manager versus another?

• How much risk is the LDI manager taking?

• Who is responsible for creating the LDI benchmark?

Overview of the main iSTOXX RiskFirst LDI Indices

Indices

Member Type

Bonds

Pre-retirement indexation

Post-retirement indexation

iSTOXX RiskFirst LDI Real Longer Pre RPI Post RPI

Deferred

Gilts (inflation-linked)

RPI

RPI

iSTOXX RiskFirst LDI Real Shorter Post RPI

Pensioner

Gilts (inflation-linked)

n/a

RPI

iSTOXX RiskFirst LDI Real Cash Pre RPI (0/5)

Gilts (inflation-linked)

RPI (0/5%)

iSTOXX RiskFirst LDI Nominal Longer Pre Fixed Post Fixed

Gilts (nominal)

iSTOXX RiskFirst LDI Non-Gilts Nominal Longer Pre Fixed Post Fixed

Non-Gilts (nominal)

iSTOXX RiskFirst LDI Nominal Shorter Post Fixed

Pensioner

Gilts (nominal)

iSTOXX RiskFirst LDI Non-Gilts Nominal Shorter Post Fixed

Non-Gilts (nominal)

iSTOXX RiskFirst LDI Longer Pre Fixed Post CPI (0/3)

Gilts (nominal/inflation-linked)

CPI (0,3%)

iSTOXX RiskFirst LDI Longer Pre RPI (0/5) Post RPI (0/2.5)

Gilts (nominal/inflation-linked)

RPI (0,5%)

RPI (0,2.5%)

iSTOXX RiskFirst LDI Longer Pre RPI (0/5) Post Fixed

Gilts (nominal/inflation-linked)

RPI (0,5%)

iSTOXX RiskFirst LDI Longer Pre RPI (0/5) Post RPI (0/5)

Gilts (nominal/inflation-linked)

RPI (0,5%)

RPI (0,5%)

iSTOXX RiskFirst LDI Shorter Post RPI (0/2.5)

Gilts (nominal/inflation-linked)

RPI (0,2.5%)

iSTOXX RiskFirst LDI Shorter Post RPI (0/5)

Gilts (nominal/inflation-linked)

RPI (0,5%)

iSTOXX RiskFirst LDI Shorter Post CPI (0/3)

Gilts (nominal/inflation-linked)

CPI (0,3%)