The recent dramatic fall in interest rates has been detrimental for long dated obligations such as defined benefit (DB) pension plans. In the current environment, corporate DB plan sponsors and their investment committees may be asking themselves many questions, such as:
- Given the fall in interest rates, is now the right time to be hedging interest rate risk?
- Should we monetize some of the liability driven investment (LDI) positions we put on years ago?
- Are there other actions we should consider to de-risk our plans?
We make some observations around the implications of the fall in interest rates for DB plans and their sponsors, and provide some thoughts around strategies they may wish to consider in the current environment.
