Hi I am confused btw what exactly is the difference between Liability hedging and LDI.It seems like the same thing to me where the assets are chosen to perform in the same way as liabilities. Please help to clear my concepts on this topic.
Hi Nimisha. I agree these concepts appear similar. For the SP5 exam, I would focus on the Core Reading, which says: Liability hedging is where the assets are chosen in such a way as to perform in the same way as the liabilities Liability Driven Investment (LDI) is the terminology used to describe an investment decision where the asset allocation is determined in whole or in part relative to a specific set of liabilities. So the Core Reading definition of LDI is very broad. Notice you may have strategies where the asset allocation is determined only in part relative to the liabilities and these could still be termed LDI. The Core Reading goes on to say that LDI may be aiming to match cashflows or an LDI strategy may focus on (PV of) assets vs liabilities. The Core Reading is consistent with my experience; in practice, there are a huge range of strategies and approaches that are called 'LDI'. I hope that helps Gresham
