Sponsored Content

Special Report: A Clear Roadmap to Navigating Your Plan’s LDI Challenges

Sponsored by 

The third quarter of this year proved to be a stressful period for fixed income and pension managers. In August, the 10-year U.S. Treasury bond tested the lower bound of the 1.50% –3.00% range in which its yield has fluctuated since 2011 as concerns about global growth permeated the market. In addition, communications from the U.S. Federal Reserve’s July rate-setting meeting left investors wondering whether the central bank was committed to further easing. This drove spreads wider and rates lower, but the move in rates dominated and ultimately drove down pension plan discount rates even further.

In this environment, corporate defined benefit pension plan sponsors pursuing LDI generally turn to the U.S. long bond market to hedge long-term liabilities. A detailed understanding of this $3.5 trillion market is critical for crafting an effective investment strategy. That is precisely what this special report aims to do – help you piece together the solution to your pension plan’s LDI puzzle.


Fundamental Pension Risk Management Questions All Plan Sponsors Should Ask.

To cut through the complexity, here are three fundamental pension risk management questions (and answers from Capital Group’s Gary Veerman, Head of LDI Solutions and Chris Anast, Senior Retirement Strategist from a July 2018 paper) that all plan sponsors should ask themselves – regardless of their company-specific situation.

Plan sponsors have many factors to consider when making prudent pension risk management decisions. Equity results, interest rate movements, glide path development, Pension Benefit Guaranty Corporation premiums, contribution policy, company-specific risk tolerance, actuarial assumption changes – the list goes on.

Moreover, many of these variables are outside of a plan sponsor’s control as they strive to achieve their ultimate objective: paying benefit obligations to plan participants.

To cut through the complexity, here are three fundamental pension risk management questions that all plan sponsors should ask themselves – regardless of their company-specific situation.

Is pension asymmetry a factor in my strategic asset allocation decisions?


Plan sponsors evaluate many different types of risk, and one of these is surplus risk – the variability of possible funding status outcomes over time. Its simplicity makes it an intuitive and frequently used metric in pension asset-liability analysis.

Here’s the problem: pension plan outcomes are, in fact, asymmetrical. Even though upside and downside scenarios may be equally likely, their impact is very different.

The “sweet spot” for most plan sponsors is between 100% and 115% funded. Above this range, there are diminishing benefits to an increased funding level. Below 100%, sponsors often take larger positions in return-generating assets with greater risk with the goal of pushing funded status higher.

At the top end of the sweet spot, say 115% funded, sponsors certainly have a comfortable cushion to weather any “un-hedgeables” such as changes to actuarial assumptions, bond downgrades, and modest funded status drawdowns. Arguably, any funded status gains above 115% funded result in little or no additional benefit to sponsor or participant. We often refer to this excess as a “trapped surplus” because funded status gains beyond a certain point cannot typically be utilized to create value for the firm or plan participants.

On the flipside, when a plan’s funded status is below 100% there can be significant negative implications. And it only gets worse as funded status declines further. The potential pain for sponsors increases exponentially, with limitations on lump sums, large expected cash contributions, and a portfolio without the asset base to help close the funding gap. In these low-funded scenarios, cash contributions will likely be the largest driver of plans increasing their funding position.

Am I hedging enough of my interest rate risk?


It’s important to consider two strategic factors when making interest rate hedging decisions. The first is to recognize that interest rate risk is an uncompensated risk. The second is that hedging decisions should be based on the forward rates rather than spot rates.

For a pension plan, equities and other return-generating assets are generally utilized to capture an expected return premium in excess of liabilities, to help improve the plan’s funded status and to cover the plan’s ongoing service costs and expenses.

In contrast, the liability hedging portfolio is utilized to reduce volatility by better matching the interest rate sensitivity of the liability, as well as grow with the liability’s interest cost. Based on these basic tenets, equity risk is a “compensated” risk, while interest rate risk is uncompensated.”

Additionally, while current interest rate levels are observable and easy to reference, it’s forward rates that matter when making hedging decisions. Forward rates are derived by current spot rates and reflect the arbitrage-free pricing of interest rates in future periods. Therefore, forwards will always be higher than spot rates when the yield curve has an upward slope.

By definition, if forward rates are realized, all returns across the yield curve are the same over the time period analyzed. Importantly, this applies to both returns on hedging assets as well as liabilities. So, if forwards are realized, hedging assets and liabilities will have the same return due to interest rate movements, all else being equal.

For an under-hedged plan, it is only when future interest rates exceed the forward curve that a plan will experience a benefit to funded status. In this scenario, liabilities will fall by more than assets, creating a positive funded status outcome for sponsors.

Am I using my overall risk budget in the most efficient possible way?


For a pension plan, all risk isn’t created equal. Understanding the sources and types of risk in your portfolio is the key to securing long-term plan objectives with the least amount of uncertainty.

As mentioned above, equities and other return-generating assets are utilized to outperform the liability, while the hedging portfolio is utilized to reduce volatility and fluctuate with the liability. So, in order to maximize the effectiveness of the return-generating assets, plan sponsors should consider the sources of risk in the portfolio.

Consider a simple example to demonstrate how a plan with a defined risk budget can construct a portfolio in very different ways and with very different pension risk management outcomes.


The equity and fixed income allocations in these portfolios differ, however both result in a one-year surplus VaR (95%) of $29 million.

You would expect portfolio B to have a higher expected rate of return due to the 10% higher allocation to equities. While portfolio B has a smaller fixed income portfolio, it is created in a more capital-efficient manner by utilizing a combination of long credit and Treasury STRIPS. This results in a much higher hedge ratio of 75% for portfolio B relative to portfolio A.

In summary, portfolio B has a higher allocation to equities, a higher expected return, a higher interest rate hedge ratio and a risk budget balanced more toward compensated risk than uncompensated risk.


By following the three takeaways above, plan sponsors can seek to build a better asset allocation that can help improve their pension risk management outcomes. Whether considering pension risk asymmetry, the level of interest rate risk hedging, or getting compensated for risk, these insights can help guide decision making toward an improved LDI strategy.

Bloomberg® is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, “Bloomberg”). Barclays® is a trademark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Neither Bloomberg nor Barclays approves or endorses this material, guarantees the accuracy or completeness of any information herein and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
Past results are not predictive of results in future periods.


Charting the LDI Opportunity Set

Investment-grade government and credit bonds, often weighted toward the long end, largely persist as the primary hedging assets in most liability driven investment (LDI) strategies.

The Bloomberg Barclays U.S. Long Government/Credit (LGC) Index owes its lasting strategic relevance to its constituent bonds, which collectively remain widely recognized as the universe of basic hedging assets available to liability-minded DB plan sponsors. Therefore, the index is useful for building a map that illustrates the core LDI opportunity set. Understanding the composition of this universe of long bonds is crucial for plan sponsors seeking to craft an effective investment strategy. Here, Colyar Pridgen, Senior LDI Strategist, Capital Group, lays out the opportunity set in LDI, along with related insights from the firm’s LDI approach.

The long bond market is relatively small and nuanced

The long bond market makes up a rather limited portion of the broader fixed income universe. Using the Bloomberg Barclays U.S. Universal Index1 as an imperfect proxy for the full dollar-denominated bond market, the map below demonstrates that the long end (bonds with maturities of at least 10 years) is much smaller than the intermediate space (maturities of 1 to 10 years).2


Many corporate DB sponsors, insurers and other investors are seeking returns and hedging opportunities in the long bond market, leading to a diversity of approaches toward pursuing long bond exposure. In some cases, these investors are searching for more creative and less traditional avenues toward accessing long duration. Some of these are captured by the U.S. Universal Index, though high-yield debt and other instruments within that index can stray from what many sponsors consider to be core hedging assets.

That brings us to the map below, our main map of the long bond market, which essentially unpacks the bottom right corner of the chart on the previous page. The constituents of the LGC index, depicted below, represent the foundational toolkit of physical bonds that U.S. corporate DB plans most frequently use to implement LDI strategies.

One key takeaway from this map is that the AA-quality segment of corporate bonds in the long end of the market is rather small.3 While discount rate selection methodologies vary somewhat, these long AA corporate bonds typically drive the critical tail ends of the discount curves used for valuing pension liabilities for accounting purposes. Despite this important role in liability measurement, it’s clear that prudent investors must broaden their investments beyond AA-rated bonds, simply due to their limited depth and breadth.


The long bond market is far from static.

Another fundamental observation is that many of the indices and subindices that have gained prominence in LDI benchmarking – often at the expense of the LGC index’s popularity as a benchmark – are actually subsets of the Long Government/Credit index. The composition of these various groupings, and their relative stature within the broader long bond ecosystem, are far from static. As the market value of the LGC index has increased, the proportions of the underlying components have changed over time, as shown in the chart below.


Changing patterns of credit issuance are a key driver of the shifts seen above. Growth in the size of the Bloomberg Barclays U.S. Long Credit Index (the LC index) and drift in its quality distribution, are other closely related outcomes. Of particular importance in an LDI context, ratings migration tends to impact assets and liabilities quite differently. The widely observed trend toward lower quality in recent years is evident in the chart below.


The “History of U.S. Long Government/Credit Index by Sector” and the “History of U.S. Long Credit Index by Quality” charts illustrate some of the key dynamics at play in the long bond market, while the “U.S. Universal Index” map presents the long end in a broader fixed income context. At Capital Group, we believe the “U.S. Long Government/Credit Index” map – the main map of the long bond market – provides critical detail for setting effective pension investment strategy, and offer here an example of how it might be used to facilitate the LDI benchmark selection process.

Using the long bond market map for LDI benchmark selection and customization.

Benchmarking in an LDI context can be a dizzying topic. Differing plan circumstances and sponsor preferences have driven a proliferation of benchmarking philosophies. However, sponsors are in many cases using similar fixed income building blocks to craft these varied benchmarks and, explicitly or otherwise, often expressing answers to certain universal questions via their benchmark selection. We believe that a map of the long bond market, such as the Map of U.S. Long Government/Credit Index above, can facilitate a productive benchmarking, can facilitate a productive benchmarking dialogue and ultimately enhance decision-making with respect to important questions such as:

Basic component selection/weighting

  • Is the Bloomberg Barclays U.S. Long Government/Credit Index the best benchmark for my plan? Do I instead want to more explicitly define the mix of credit and government components, given my broader asset allocation?
  • Is corporate or credit a more suitable basis for the credit-risky portion of my benchmark? Is Treasury or government a more suitable basis for the credit-riskless portion of my hedging portfolio? Do I view these as material decisions?

Benchmark engineering intricacies

  • Could more nuanced benchmark construction (e.g., issuer caps, quality restrictions, maturity bucketing, sector reweighting) offer improvements in liability matching or other investment goals?
  • Should pension risk transfer objectives influence these benchmark engineering decisions? Is transfer-in-kind feasible?

Implementation beyond LGC

  • Should bonds outside of the long government/credit universe, such as intermediate maturity, high yield and private debt, play a role within my hedging portfolio?
  • Should STRIPS (or derivatives such as U.S. Treasury futures or interest rate swaps) be leveraged in enhancing capital efficiency and/or matching liability-relative curve risk?
  • Do I want an investment strategy that is managed or measured more explicitly against my liability? How do I ensure manager accountability and proper governance? Does completion management offer a practical solution?

Additional chart notes

Exhibit 1: Map of U.S. Universal Index “Long STRIPS” refers to U.S. Treasury STRIPS with maturities of at least 10 years, which are not part of the LGC index. While depicted as a subset of long Treasury in order to offer a broad sense of the relative size of an important component of the universe of physical hedging instruments (and to avoid potentially double-counting stripped Treasuries), note that STRIPS are not in fact a component or subset of Treasuries. Note also that because Long STRIPS contain no cash flows before 10 years (while long Treasury, on the other hand, does implicitly incorporate shorter-dated cash flows in the form of coupon payments), there is some measure of inconsistency worth noting (e.g., arguably, technically nine-year coupon STRIPS could be included here, to the extent that they are created from coupons of Long Treasuries).

Exhibit 2: Map of U.S. Long Government/Credit Index “Sovereign, etc.” refers to the aggregated-for-convenience sectors of sovereign (the largest sector included herein), foreign agencies (which have similar quality distribution though skewed somewhat higher), and supranational (a relatively small sector which in the long end is entirely AAA-rated bonds). The other noncorporate credit sector, shown distinctly, is described as “local authorities,” which is technically the Class 2 description for the foreign local governments sector.

Exhibit 3: History of U.S. Long Government/Credit Index by sector Before 6/30/2000, many credits that today would be categorized as long corporate were instead a component of the long noncorporate credit universe, with the legacy sector name foreign corporations. These securities have been included in the “Sovereign, etc.” category for periods prior to 6/30/2000.

Exhibit 4: History of U.S. Long Credit Index by quality Before 6/30/2000, many credits that today would be categorized in the foreign local governments sector (which we call “local authorities”) were instead identified by the legacy sector name Canadian. These securities have been included under “local authorities” in our historic figures.

1 Per Barclays POINT: “The U.S. Universal Index represents the union of the U.S. Aggregate Index, the U.S. High-Yield Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index, and the non-ERISA portion of the CMBS Index. Municipal debt, private placements, and non-dollar denominated issues are excluded from the Universal Index. The only constituent of the index that includes floating-rate debt is the Emerging Markets Index.” POINT is a registered trademark of Barclays Capital Inc.While quite broad, the more than $25 trillion U.S. Universal Index offers an admittedly incomplete representation of the dollar-denominated bond universe; and in addition to the exclusions noted by Bloomberg Barclays, it is notable that securities with maturities of less than one year are omitted. For the purposes of this article, the U.S. Universal Index is considered to be sufficiently broad, and to capture the bulk of bonds important to most liability driven investors.

2 This is especially true on a market value basis. Note that all figures and charts in this article are presented in market value terms.

3 The AA segment of the long corporate index is also quite concentrated, with four issuers accounting for significantly more than 50% of its market value as of 3/31/2019. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.


This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
The return of principal for bond portfolios and for portfolios with significant underlying bond holdings is not guaranteed. Investments are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
Barclays POINT data ©2019 Barclays Capital Inc. Used with permission. POINT is a registered trademark of Barclays Capital Inc.
Past performance is not indicative of future results.
All Capital Group trademarks referenced are registered trademarks owned by The Capital Group Companies, Inc. or an affiliated company. All other company and product names mentioned are the trademarks or registered trademarks of their respective companies.
American Funds Distributors, Inc., member FINRA.


An Active Approach to LDI

It’s not easy being a corporate pension plan sponsor, which is something Gary Veerman, Head of LDI Solutions, Capital Group, fully realizes. Veerman has been thinking about and executing liability driven investment (LDI) strategies for a significant part of his career, and as such he has a terrific knack for helping plan sponsors envision solutions to their challenges in a nuanced and holistic way. Veerman recently spoke with II for what turned out to be a conversation packed with insights, including the customization of benchmarks to more fully exploit existing opportunities in the credit market.

What’s driving demand for LDI right now?

Funded status is still the primary driver. For context, we’ve seen one of the longest equity bull markets in history, and plan sponsors have been compensated for the risk they’ve taken in equities. But largely because of seemingly ever-lower rates, alongside some other factors, many plans are still sort of where they were 10 years ago. Recently, we’ve also seen some large companies take advantage of low-interest debt financing and truing up some of their unfunded deficit.

Except now we’re at or near the end of a cycle instead of the beginning of one – and the road ahead is widely expected to have more frequent volatility spikes.

That’s the dilemma plan sponsors face – and one very rational solution is to simply move up in the capital structure as an investor. Selling equities and buying credit – in many cases of the same issuing companies – seems a prudent risk management move regardless of the market environment, but particularly so after 10+ years of soaring equity prices. Plus, it feels pretty good to get the de-risking benefits relative to liabilities.

Where are we in the evolution of LDI? Is there a state-of-the-art strategy?

If there were a silver bullet, the funded-status challenge would already be solved. But as an organization, we believe it comes down to the blocking and tackling. From an asset allocation standpoint, that can mean focusing on your risk budget and balancing more of that risk toward equities than interest rates – with equity risk being compensated and interest rate risk arguably being non-compensated. From a fixed income implementation standpoint, it involves hiring proven active managers that demonstrated good downside protection in periods of market stress.

It sounds as if a key might be for plan sponsors to diversify their credit portfolios.

Of late I’ve been talking to plan sponsors about private credit, securitized credit, other multi-sector type solutions. It’s smart for plan sponsors to consider all of them, but you also must take a step back and consider the risk and reward tradeoff on an incremental basis relative to a more vanilla approach.

Here’s an example of what I mean: Private credit may get you, let’s say, 30 to 50 basis points above public market credit, before considering any added risk. If you’re going to allocate 5% of your portfolio to something that potentially gets you 50 basis points, you have to go through all the steps of adding an asset class like private credit to gain two and a half basis points of expected rate of return increase. And we know that things like private credit have liquidity constraints and other factors that will make them track the liabilities less accurately. In short, there are pros and cons to everything. If you’re not very confident that the pros significantly outweigh the cons, stick to the blocking and tackling.

Where are the opportunities for LDI strategies in investment-grade credit at the moment?

Our belief is that the entire investment-grade long credit universe should generally be the starting point, including BBBs. Sponsors often go up in credit quality or minimize BBB exposure because they’re trying to fine tune relative to a AA-rated discount curve. We understand that, and we do manage such higher quality portfolios. But realistically, that can drive unintended negative consequences for clients. For instance, it can create significant challenges for managers, such as suboptimal liquidity, concentration risk and limited degrees of freedom to generate excess return. We would need to achieve an excess return target just to try to mitigate the liability-relative headwind associated with bond downgrades. Instead of restricting BBBs, sponsors can consider blending full investment-grade long credit with Treasuries or STRIPS to achieve a desired overall quality, while maintaining the integrity of outcomes with the broad investment-grade universe of bonds.


When a plan sponsor is thinking about that broader credit universe, is the risk of a step down in quality something that should be on their mind?

That is something we all talk about with plan sponsors. BBBs make up more than half of the Bloomberg Barclays U.S. Long Corporate Index today. Our view is that quite a few of those names moving to BBB in the past few years have been a product of merger and acquisition activity, which has been fueled by the historically low interest rate environment. We believe many of these firms have attainable plans to de-lever and could potentially move up a notch or more on the credit quality spectrum.

That said, active management is crucial because migration risk certainly exists within the BBB space, particularly in an idiosyncratic way for firms that don’t execute effectively on those de-leveraging strategies. That’s why we’re so keen on fundamental analysis and striving not to put those bonds in our client portfolios and subjecting them to that downgrade risk.

You seem passionate about the alignment of LDI strategy goals between plan sponsors and managers, including customization of benchmarks. How does that work to an investor’s advantage?

Fixed income indices sometimes work in strange ways. If you invest per an index, then as issuers take on more debt, you’re buying more of their bonds because they just borrowed more money – that’s very counterintuitive. Whether that’s the government or corporations, that’s a foundational flaw of blindly using that index as a hedging tool. This has important implications for both benchmark customization and portfolio implementation via active management.

Also, importantly, corporate bonds and equities emanate from the same companies – just different parts of the capital structure. So, when there’s a period of stress and equities take a big fall, those corporate bonds are not likely to perform well. That’s why it’s important to think holistically. Even if you’re giving up a little bit of yield because you’re partially allocating to Treasuries or STRIPS instead of fully to credit, you’re significantly helping yourself from a risk management perspective.

Do your conversations with plans differ depending on whether they are considering pension risk transfer?

Yes, but it depends very much on both the anticipated size and the intended timeframe for the pension risk transfer activity. Whether or not in-kind asset transfers to an insurer are feasible depends largely on transaction size, and preparation for such activity can certainly influence investment strategy leading up to the deal. But, again, the expected timeline is also important, and for sponsors without a definitive timeframe, it’s worth considering whether you really want to potentially compromise on-balance-sheet outcomes by trying to fine tune a credit portfolio for an uncertain future transaction. It may be more suitable to structure your on-balance-sheet LDI portfolio for the best outcomes, without losing sight that there could ultimately be transaction cost savings for large plans that hold high quality long corporate bonds and then transfer them to an insurer.


Is there enough capacity in the marketplace for everyone to execute the strategy they want?

There’s been a lot of talk around the availability of high quality corporate bonds in the marketplace; that is, if everyone buys long bonds, the math just doesn’t work. What we’ve experienced with significant de-risking is that there’s generally been no problem sourcing those bonds. Foundationally, supply and demand are something to keep an eye on, but ultimately with demand from plan sponsors, companies will come to the table with that supply. So, at the industry level, capacity constraints are probably a little bit overblown, and we don’t see it as a significant headwind anytime in the short to intermediate term.

On the manager capacity side, you have to wonder: at what point does a $30 billion or $40 billion long credit manager lose their ability to add value? For example, we believe security selection is the most idiosyncratic risk pension plans can add to their LDI program. If you’re a $40 billion book of business and there’s an attractive new issue that comes to market, the impact that has in your portfolio is very likely less than it would be if someone has a $5 billion book of business. The bigger the manager, the more expectations of outcomes should be re-evaluated. Often their tracking error tends to get a lot lower and they don’t have the ability to take the type of risk they want to take, or the sponsor is expecting. One plan sponsor I spoke to called it “closet indexing.”

Regarding that security selection process, is the research behind it foundational to your LDI strategies?

It is at the heart of our value proposition; particularly given that we are among the largest active equity managers. Our equity analysts have very different conversations with senior management at companies compared to debt analysts, unsurprisingly, since, for example, certain potential corporate actions may be good for one type of investor but bad for another. Our equity analysts share those insights with our fixed income analysts in the spirit of partnership and collaboration, and often our debt analysts go to meetings with the equity analysts or just hop on the phone and get those insights directly from the C-level executives in those honest conversations. That’s a huge differentiator. There are other firms that do equities and fixed income, but I challenge you to find one that has a culture of partnership like this one.

We’ve talked a lot about plan sponsors and the industry. In the context of what you think plan sponsors need, what sets you and your team at Capital Group apart?

The biggest thing is that we’re privately owned, so we can allocate the resources we need to pursue our investment goals and appropriately resource LDI solutions. We are active managers. We do not have any passive strategies. We will not implement strategies where we do not believe we can add value. Active management is not a philosophy for us, it’s a culture, and that’s vastly different from trying to be all things to all people. As I mentioned earlier, equity markets can be highly correlated with credit markets. When equities are down, there’s a higher probability of widening spreads and credit downgrades creating additional headwind. The last thing you want is your active manager to be down as well. That asymmetry of downside risk management is what LDI is about – and it’s what we aim to provide.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
All Capital Group trademarks referenced are registered trademarks owned by The Capital Group Companies, Inc. or an affiliated company. All other company and product names mentioned are the property of their respective companies.
The return of principal for bond portfolios and for portfolios with significant underlying bond holdings is not guaranteed. Investments are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.
Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor’s, Moody’s and/or Fitch, as an indication of an issuer’s creditworthiness.
The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.