Greenwood Pension Fund's Investment Strategy Dilemma

Very Hard Institutional Portfolio Mgmt Pension Funds

Greenwood Pension Fund, managing total assets of $12 billion, recently encountered a significant increase in its liability due to changes in life expectancy assumptions. The fund is currently employing a liability-driven investment (LDI) strategy, focusing on matching its assets to the long-term liabilities using bonds and other fixed-income instruments. However, due to rising interest rates, the fund's fixed-income investments have generated lower returns than expected, leading to questions about the viability of the LDI approach. The investment committee is debating whether to adjust the asset allocation by increasing exposure to equities in anticipation of higher returns over the long term or to maintain its LDI focus in order to ensure that the fund can meet its near-term liability obligations.

Given this context, what would be the best course of action for the fund's investment committee regarding its investment strategy?

Increase exposure to equities to take advantage of potential future returns, while maintaining a balanced approach.

Reinforce the LDI strategy by reducing equity exposure to ensure alignment with the increased liabilities and preserve capital.

Diversify investments into alternative asset classes to balance the underperformance of fixed-income instruments.

Hint

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