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Avoid the Agg Drag

Picture of Managing Director, Endowment & Foundation Practice
Greg Meila, CFA Managing Director, Endowment & Foundation Practice
  • Some defined benefit pension plan sponsors that have not begun to de-risk are hesitant to shift out of Agg-based fixed income allocations toward longer-duration mandates in the current environment, citing the specter of rising interest rates.
  • Lengthening the duration of the existing fixed income portfolio can immediately lower surplus risk, without the need to reduce the allocation to growth assets.
  • The Agg’s duration and composition mean it isn’t well suited to track a long duration liability that is discounted based on high-quality corporate bonds.
  • Even ignoring the liability, a long-duration strategy may actually outperform the Agg if interest rates do not rise by as much as or as fast as is already priced into the yield curve.

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Greg Meila, CFA - Greg Meila is a Managing Director for the Endowment & Foundation Practice at Cambridge Associates.

 


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Cambridge Associates is a global investment firm with 50+ years of institutional investing experience. The firm aims to help pension plans, endowments & foundations, healthcare systems, and private clients achieve their investment goals and maximize their impact on the world. Cambridge Associates delivers a range of services, including outsourced CIO, non-discretionary portfolio management, staff extension and alternative asset class mandates. Contact us today.

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