Analytic Tools

Proprietary Liability Model

The asset allocation decision is the single-most important investment decision, accounting for 80-90% of a portfolio's total return. As such, Yanni Partners is a strong proponent of fully diversified portfolios.

Asset allocation decisions should be deliberate, thoughtful, and proactive, not reactive. We provide the client with the information necessary to determine the appropriate long-term, strategic asset allocation decision unique to each asset pool, in conjunction with fund objectives.

The focus of our asset allocation work is to develop an optimal investment strategy given the nature of the claims against the investment pool. We project probability distributions of future fund values based on our capital market assumptions and projected payments. We perform such projections for different asset mixes. We compare future fund values (for each specific asset mix) to the present value of projected payments at different intervals, such as five, 10, and 20 years. At each future interval, we evaluate the terminal fund value to an estimate of the liability. Future fund values are different points from the probability distribution, such as 5th, 25th, 50th, 75th, and 95th percentiles. This analysis enables the client to identify potential outcomes that pose unacceptable outcomes from a business standpoint. This framework helps the client to identify asset mixes with risk characteristics that the institution cannot tolerate.

When we perform an asset/liability analysis for a pension plan, we ask the client's actuary for a file of the projected annual benefit payments. We compute the present value of benefits at different intervals in the future to evaluate changes in the plan's funded position. Our model displays different values of the liability given various changes in interest rates.

Recently, we have expanded our asset/liability software to accommodate non-pension post-retirement benefit plans, such as health and welfare plans.