I read a recent article on the investment returns achieved by the ICI pension fund . The ICI fund was one of the first funds to implement a Liability Driven Investment (LDI) strategy back in the year 2000. The article was lauding the fact that the fund had returned an average of 5.5% per annum over the last 10 years compared to 3.7% per annum for the average UK defined benefit pension scheme, according to the WM All Funds universe. All good news you might say, but on closer inspection what is it actually telling us, other than that the 3.7% per annum achieved by the average pension scheme is lamentable? As most readers of this article will recognise, the purpose of an LDI fund is to provide returns which match the timing and nature of the cashflows required by the scheme. In broad terms, the LDI fund should rise in value if interest rates fall, or inflation rises. This will “match” the rise in liabilities (if a number of other assumptions hold). The converse is expected if interest rates rise, or inflation reduces. In my view the article is really telling us that the fund returns were positive because interest rates fell, (which is good, because that’s what it is supposed to do). It tells us nothing about the real success of the strategy, i.e. how did the fund return relative to the changes in liabilities which it was trying to match, or indeed would a simpler, less costly holding in long terms gilts be just as successful when set against the undoubted cost of this strategy? Depending on the movements in interest rates and inflation, a very successful LDI strategy could be one which gives rise to negative returns, as long as it matches what it is supposed to match. So while the article on ICI makes for interesting reading, would it have been more valuable if the apples it described had been compared to other apples rather than a wider selection of fruit?