Multi-Assets Fixed Income Liability Hedging Case Study Assignment

Assignment Task

Open-Ended Prompts

1. Upcoming prospect meeting:

Your manager is going to be meeting with Ford Motor Company to discuss a potential opportunity to help them manage their US defined benefit pension assets. They have asked you to help them prepare for the meeting by finding relevant public information that you think would be helpful for them to have in the discussion.

2. Upcoming existing client meeting:

You work with an insurance company that invests the overwhelming majority of its portfolio in high quality liquid fixed income assets, specifically U.S. Treasuries, Public Investment Grade Corporates and Agency MBS. The client has asked you to discuss fixed income asset classes that are investment grade but would offer higher yields than their current portfolio. Please outline what other investment grade fixed income asset classes you would discuss with the client and what types of risks you would be taking on by adding these asset classes to the portfolio.

Excel calculation:

3. Funded status attribution:

As of 1/1/2022, a sample US ERISA defined benefit pension plan has $1.0bn in assets vs $1.2bn present value of liabilities (calculated using a 2.75% discount rate). More information about the pension assets and liabilities is below:

• The liability rates duration is 10 years
• The pension accrues $24 mm/year in monthly service cost
• The pension pays $15mm/year in monthly benefit payments
• Admin fees & investment costs are $2 mm/year
• The plan sponsor makes a $10 mm/year contribution in March
• The pension’s asset allocation is 60?WI IMI/40% US Agg

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