Liability Driven Investments
TCW MetWest implements two types of Liability Driven Investment Strategies: Long Duration Fixed Income and Liability Matching Overlay Strategies (Overlays).
Our Long Duration Fixed Income strategies are typically measured against high quality long maturity benchmarks such as the Barclays Capital Long Government Index or Barclays Capital Long Government/Credit Index. To meet the objective of consistent outperformance of these indices, we use a diversified mix of fixed income strategies including duration management, yield curve management, sector rotation, and execution.
In creating liability-driven strategies (Overlays) for our clients, we weigh a number of considerations, including:
For our Overlay strategies, we work with clients to model their liabilities, then measure the duration, convexity and curve characteristics of the liability cash flows. We then create a variety of long duration portfolio options and stress-test each one versus the client’s liabilities across a wide variety of interest rate and yield curve scenarios. The potential solutions may include cash-based long duration bonds, swap-based portfolios and overlay strategies.
This is not a “one-size-fits-all” strategy, and there is no inherently “correct” solution for a client. Rather, there is a range of potential solutions that offer discrete risk/return profiles. TCW MetWest works with each client to quantify and explain the tradeoffs of each strategy and help select a solution that best meets the client’s objectives and risk tolerances.