Innocap, a subsidiary of National Bank of Canada, today announced the launch of its new liability driven investment (LDI) product that generates, net of fee a return equivalent to the inflation index plus 2% to 4%.

A majority of pension funds now have to mark to market their liabilities instead of using a fixed discount rate. This has heightened pension funds’ board awareness to their real challenge: interest rates and inflation. Innocap’s LDI product has been developed to meet these challenges.

Innocap’s LDI product is designed specifically for pension funds. “We don’t have a standardized solution, we work with investors and their advisors to meet their individual requirements”, explains Martin Gagnon, managing director.

Innocap’s LDI product can be rebalanced on a monthly basis to reflect the changing nature of global pension plans’ liabilities. Together with the pension fund, Innocap will determine the fund’s nominal liabilities, and then Innocap creates a fixed income proxy portfolio that will bridge the pension fund’s asset mix shortfall in terms of duration.

“We have run simulations using our LDI product, and we have found that our product is an excellent proxy for real return bonds, generating attractive inflation plus returns, with excellent liquidity”, adds Denis Parisien, managing director. Innocap’s LDI product is focusing on global pension funds to create customized solutions that meet investor’s requirements.

Innocap acts as National Bank’s asset manager for its alternative investment activities. Innocap currently manages US$1.7 billion in hedge fund mandates, through a unique managed account platform.