Unique circumstances require custom portfolios

At Johnson Asset Management, we understand the need to customize each LDI portfolio to our clients’ unique circumstances. We seek to minimize risk through benchmark customization, while managing for Alpha by implementing our proprietary Quality Yield investment discipline. When it comes to LDI investing, we seek to be a trusted partner every step along the way.
The key to an effective LDI portfolio is customization. Our goal is to work closely with our clients to tailor each LDI portfolio to their specific liabilities, goals, and cash flow needs.
Johnson believes that bonds should behave like bonds, especially during periods of economic and market stress. We also believe that the consistent compounding of income drives returns in the bond market. As a result, our strategy employs a quality yield approach.
Our intensive fundamental bottom-up credit research and monitoring process is the cornerstone to our belief that superior credit selection produces superior risk-adjusted returns. We build and structure each client’s portfolio from the bottom-up – focusing on optimal bond selection, tightly controlled duration disciplines and close management of all portfolio risk factors
Johnson Asset Management partners with each of our clients to understand their liability risk needs. Our portfolio construction process is designed to successfully immunize liability risks.
  • Duration alone is only adequate for parallel rate shifts.
  • The yield curve often shifts and twists making Key Rate Duration immunization an important component of building LDI portfolios.

LDI Portfolio Construction


Analyze Liabilities

  • Discount liabilities using appropriate discount rate
  • Model discounted liabilities
  • Analyze key rate duration profile to properly immunize twists in the yield curve

Construct Custom Benchmark

  • Select a benchmark that best meets LDI objective – full immunization, partial immunization, core portfolio with hedge overlay
  • Match credit quality with liability discount curve
  • Match duration and key rate duration profile to liabilities

Manage for Alpha

  • Emphasize high quality investment grade corporate bonds to enhance yield
  • Use long duration government bonds as a hedge
  • Emphasize off the run maturities to capture additional liquidity premium

LDI sample investment process


Phase 1

  • Funded as a $60mm Core bond mandate
  • Ongoing discussion with client on how to better match liability of assets with the client’s plan

Phase 2

  • Discussions led to shift to customized long duration mandate
  • Worked closely with client to develop a custom blended benchmark to meet their goals of A rated average quality and duration of 10 years
  • Client funded an additional $500mm as a result of successful customized long duration transition

Phase 3

  • Continuing discussions with the client led to transition to fully immunized LDI mandate
  • Modeled liabilities on behalf of the client
  • Created a new custom benchmark that fully immunized key rate duration sensitivity of liabilities