LDI Sausage
Jul 30th, 2007 | Filed under: Liability Driven InvestingThere’s little question that portable alpha and liability-driven investing (LDI) have captured the attention of the world’s pensions over the past 5 years. But while pension funds are attracted to the results of such strategies, they can be turned off by their complexity (related posting). As they say about sausages (and democracy), “Tastes great, but you sure don’t want to see how it’s made!”
Now Pensions & Investments reports that at least one LDI provider, ING, has offered to make the entire sausage itself. All the pension has to do is pull up a chair and enjoy those tasty links with their scrambled eggs.
This development was inevitable. It seems to be the natural evolutionary path of various business services industries. Services firms who begin life as consultants gradually morph into full-fledged suppliers of core business functions. For example, in the 1990’s, it gradually dawned on the consulting industry that if it was so good at creating efficiencies, why should it not just assume responsibility for entire business processes on a contingency fee basis. That way, they could profit from their own ideas, rather than simply provide them by the hour. I recall my own employer, a Big 5 firm, pitching the US Government on the operation of entire military and government installations.
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