iSTOXX RiskFirst LDI Indices to be launched on April 23

STOXX and RiskFirst address the challenges of a £1 trillion market by providing independent benchmarks 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 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 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 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?

Detailed index information will be provided on April 23.

Overview of the 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)	Deferred	Gilts (inflation-linked)	RPI (0/5%)	n/a
iSTOXX RiskFirst LDI Nominal Longer Pre Fixed Post Fixed	Deferred	Gilts (nominal)	Fixed	Fixed
iSTOXX RiskFirst LDI Non-Gilts Nominal Longer Pre Fixed Post Fixed	Deferred	Non-Gilts (nominal)	Fixed	Fixed
iSTOXX RiskFirst LDI Nominal Shorter Post Fixed	Pensioner	Gilts (nominal)	n/a	Fixed
iSTOXX RiskFirst LDI Non-Gilts Nominal Shorter Post Fixed	Pensioner	Non-Gilts (nominal)	n/a	Fixed
iSTOXX RiskFirst LDI Longer Pre Fixed Post CPI (0/3)	Deferred	Gilts (nominal/inflation-linked)	Fixed	CPI (0,3%)
iSTOXX RiskFirst LDI Longer Pre RPI (0/5) Post RPI (0/2.5)	Deferred	Gilts (nominal/inflation-linked)	RPI (0,5%)	RPI (0,2.5%)
iSTOXX RiskFirst LDI Longer Pre RPI (0/5) Post Fixed	Deferred	Gilts (nominal/inflation-linked)	RPI (0,5%)	Fixed
iSTOXX RiskFirst LDI Longer Pre RPI (0/5) Post RPI (0/5)	Deferred	Gilts (nominal/inflation-linked)	RPI (0,5%)	RPI (0,5%)
iSTOXX RiskFirst LDI Shorter Post RPI (0/2.5)	Pensioner	Gilts (nominal/inflation-linked)	n/a	RPI (0,2.5%)
iSTOXX RiskFirst LDI Shorter Post RPI (0/5)	Pensioner	Gilts (nominal/inflation-linked)	n/a	RPI (0,5%)
iSTOXX RiskFirst LDI Shorter Post CPI (0/3)	Pensioner	Gilts (nominal/inflation-linked)	n/a	CPI (0,3%)