Investment Strategy:
Linking Assets and Liabilities

Managing a plan’s surplus/deficit (assets minus liabilities) is more important than managing either assets or liabilities alone. Certain financial variables — such as inflation and interest rate levels — that impact investment performance also directly impact liability behavior.

A properly constructed portfolio will anticipate these economic relationships, and will promote the desired level of surplus/deficit volatility, cash contribution and expense levels and volatility, balance sheet impact, and other variables. Liability-driven investment strategies are one approach to managing surplus/deficit.