Considerations for Fixed Income Indexing in LDI Strategies

As a fixed income portfolio manager at an institutional investment firm, you are tasked with developing a liability-driven investment (LDI) strategy for a pension fund. The pension fund has a defined liability schedule with cash flows due over the next 20 years. You are considering implementing a fixed income indexing strategy as part of your LDI approach.

Discuss the factors you would consider when selecting a fixed income index for the pension fund. In your response, analyze how these factors relate to the pension fund's liabilities and overall investment objectives. Additionally, explain the potential advantages and disadvantages of using an indexing strategy in the context of LDI.