// definition
LDI
Liability-driven investment
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Short definition
A strategy aligning the interest-rate and inflation sensitivity of pension assets with future pension liabilities. Bonds, derivatives and sometimes borrowing provide the exposure. Leverage creates collateral demands: a better-funded pension scheme can own an LDI vehicle facing cash shortages or depleted capital.
risk atlas
Knowledge map
Intuition
The present value of pensions can fall faster than assets while the LDI fund’s contracts demand resources immediately.
Formula
funding ratio = scheme assets / present value of pension liabilities