Member-Driven Investing (MDI) Strategy
Enhancing our Investment Capabilities
Our members want pension certainty. To accomplish this, we have created our Member-Driven Investing (MDI) strategy, which seeks to earn a return sufficient to keep the Plan sustainable over the long term, while keeping benefit levels and contribution rates stable. This requires that we strike the appropriate balance between risk and return.
We must take investment risks in order to earn returns. If we take insufficient risk, we will not earn the returns we need to keep paying benefits at the current contribution rate. On the other hand, taking excessive risk will jeopardize our fully funded status and could lead to contribution rate increases or benefit reductions.
We face several challenges as we strive to keep the Plan fully-funded:
- Investment Environment – The combination of low interest rates and elevated market valuation has reduced return expectations
- Plan Maturity – A declining ratio of active to inactive members has reduced our risk tolerance
- Longevity Risk – Higher life expectancy increases the Plan’s pension obligations
- Discount Rate for Funding Valuation – Lower interest rates have reduced our discount rates, in turn pushing pension obligations higher
Our investment strategy in this difficult environment is to harvest a diversified set of market risk premia, across liquid and illiquid markets, while adding value through active management. Our portfolio is anchored by illiquid asset portfolios across private equity, infrastructure, and real estate strategies. We then make use of a public market “completion portfolio”, implemented by our internal capital markets group, to achieve our desired mix of market risk premia and value-add strategies.