Investment - Articles - Schroders’ launch next generation Synthetic Gilt Funds

 Schroders’ LDI team, which is one of the fastest growing in the industry, is today launching a range of five Liability Driven Investment (LDI) strategies that will provide an effective hedge of the interest rate and inflation risks within clients’ liabilities through the use of synthetic gilts.

  

 The new fund range is made up of five pooled vehicles; two providing Fixed Interest Gilt exposure and three providing Index Linked Gilt exposure. Each fund targets cash flows with specific maturities and characteristics. This ensures that the synthetic gilt exposures in the funds will closely match the liabilities covered both at outset and over the life of the strategy. The new funds can be used separately or alongside the existing swap-based Matching Plus pooled fund range. 

  

 Andrew Connell, Head of LDI, comments:

 “Traditional LDI hedging has been achieved through the swaps market. However, as a result of the downturn in the economy and associated gilt issuance, most gilt yields are currently higher than the equivalent swap yield.  Over the last two years, segregated mandates have made increasing use of synthetic gilt instruments - gilt total return swaps and gilt repos - to gain access to liability coverage at more attractive yields.  

  

 As a result of this fund launch, we can now provide pension scheme clients with gilt based liability coverage and deliver it through leveraged pooled vehicles, enabling our clients to access more attractive yields than currently available in the swaps market without having the increased governance burden of a segregated solution.”