River and Mercantile Derivatives is a provider of structured equity and liability driven investment (“LDI”) to institutional investors. We offer a bespoke approach that is affordable and transparent.
River and Mercantile Derivatives is part of River and Mercantile Group PLC, which is publicly traded on the London Stock Exchange (Ticker: RIV).
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Pension plan sponsors, especially those with frozen pension plans, have spent significant time deciding on the most appropriate balance between growth (return seeking/equities) and hedging (liability matching/long-term bonds) assets to meet their objectives. For most, the ideal goal is to fully fund the pension plan through a balance of investment performance, cash contributions and a rising interest rate environment while not subjecting themselves to higher than desired funded status risk.
As the bull market in US equities approaches its 9 year anniversary we look at how to protect against market declines while retaining equity upside exposure.
Pension plans typically de-risk by buying liability matching bonds and selling equities. Although this is a perfectly valid approach, it results in a direct tradeoff between the desire to reduce funded status volatility versus maintaining higher expected returns. Derivatives, however, provide plan fiduciaries with additional flexibility versus simply allocating between these two asset types. A derivative strategy we call ‘Synthetic Equity’ can be used by pension plans to maintain expected returns and retain equity exposure, yet still reduce funding level volatility.