EXCLUSIVE: BMO to switch clients away from 'bucket-based' LDI strategies

Jonathan Stapleton
clock • 1 min read

BMO Global Asset Management is switching schemes invested in its historic range of passive liability-driven investment (LDI) funds to updated strategies.

The switch will mean clients invested in its so-called "bucket" funds - which the asset manager has offered clients since 2006 - will be moved to a "profile-based" approach.

Under the bucket-based approach, schemes needed to buy multiple funds, each targeting a specific maturity point, to hedge their liabilities - meaning they ended up holding a portfolio of 10 to 20 funds.

However, under the profile-based approach numerous bucket funds can be consolidated into a small number of profile funds - an approach BMO says is more flexible and materially reduces both cost and the trustee governance burden for schemes.

BMO Global Asset Management head of LDI client portfolio management Simon Bentley said that even though schemes will be moving to an approach with fewer funds it said its profile funds could still provide smooth and accurate hedging and also accommodate gradual upsizing of hedge ratios without distorting the shape of the overall hedge.

The asset management firm said it would transition clients currently in its bucket -based LDI strategies after analysis of each scheme's portfolio and the recommendation of the most appropriate transition mechanism - noting it would fully manage the transition and work to minimise both out of market risks and costs.

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