Ehrentreich LDI Consulting & Research

Retirement/Nest Egg ImageEhrentreich LDI Consulting & Research is specialized on providing consulting services on asset allocation and liability driven investment (LDI) strategies to DB plan sponsors, investment managers, and other consulting companies.

Dr. Norman Ehrentreich has proposed the existence of an Asset Return – Funding Cost Paradox for DB pension plans in the US. According to this paradox, it is likely that lower returning LDI strategies will result in lower funding costs than higher returning, but more volatile equity based investment strategies. Because of pension regulations in the US (and in Canada and in the UK), the requirements to convert an eventual equity risk premium into lower funding costs are generally not in place. By holding equities, plan sponsors increase their funding status volatility with little or no hope of actually profiting from a long-term risk premium. We are, therefore, strong advocates for liability driven investment strategies, not only for corporate DB pension plans, but also for public pension plans.

We have developed an integrated suite of LDI solutions for a variety of DB pension plans. No matter what the size of a pension plan, no matter what their funding status, duration and cash flow structure is, we are able to produce customized liability indices for each pension plan. We design each index in order to minimize funding status volatility over time. We employ a proprietary optimization procedure that has been developed and back tested for a variety of plan liability structures. 

Our Consulting Services

  • Development of custom liability benchmarks (levered / unlevered)
  • Back testing of these indices and comparing them to other common investment strategies for DB pension plans
  • Asset – Liability Modeling
  • Stress Testing
  • Structured Settlements
  • Strategic asset allocations recommendations with a multi-period CAPM model that takes institutional and behavioral constraints of plan sponsors into account
  • LDI evaluations
  • Interest rate modeling
  • Macroeconomic forecasting
  • Monte Carlo simulations