A large financial services asset manager was seeking to augment the hedging strategies used in its liability-driven investments (LDI) to provide solutions to its pension clients.
The asset manager was searching for sources of non-traditional, diversified private fixed income to complement existing long-duration corporate credit and government bonds in its liability hedging portfolio without adding incremental credit risk.
PGIM Real Estate's long history of investing private fixed income assets offered the asset manager detailed credit analysis that predated the benign credit environment that has existed post-GFC. As such, the asset manager could evaluate the credit risk, volatility and correlation of the private credit strategy relative to public hedging instruments. In addition, as an open-end fund, the strategy provided the flexibility for the asset manager to easily access the private asset class as it received underlying inflows from its clients and to rebalance its allocations over time.
The asset manager's investment thesis was that private fixed income would provide investors with excess return potential and diversification relative to traditional LDI hedging portfolios. PGIM Real Estate worked closely with the asset manager to identify solutions that would help it to structure its portfolio to achieve investment returns. Ultimately, the asset manager selected PGIM Real Estate's core commercial mortgage loan fund, which gave it access to our large, direct origination network and in-house servicing team.
Case studies are provided for illustrative purposes only and results may vary.
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