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Strategies & Solutions

Derivative Overlay


NISA is one of the largest derivative overlay managers in the world, according to Pension & Investments’ ranking for U.S. institutional, tax-exempt assets covered as of 12/31/22, published on 6/12/23.1 We manage customized strategies, including beta overlay, duration overlay and systematic strategies, among others.

Strategic derivative implementation demands both an operational expertise and the commitment of highly engaged client services and investment strategy professionals, supported by dedicated technology and talent.

Our three primary overlay strategy categories include:

  1. Liability management to seek to reduce risk using duration shortening and extension, yield curve management and liability completion.
  2. Asset class “beta” implementation to seek to reduce cost and enhance expected return. Strategies include equity overlay – including factor-based strategies, systematic strategies, portable alpha, commodities and tail-risk hedging.
  3. Asset allocation and tactical strategies to seek to reduce risk and enhance expected return by rebalancing, equitizing cash, management of asset transitions and currency to name a few.

NISA Overlay Strategies

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Asset Class “Beta”

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Asset Allocation &
Tactical Strategies

NISA implements strategies using both over-the-counter (OTC) and cleared instruments. We facilitate reconciliations, collateral/margin exchange and trade settlement for our clients.

1Source: Pensions & Investments (P&I). Rankings were based on U.S. institutional, tax-exempt assets managed internally (covered for overlay) as of December 31, 2022; published on June 12, 2023. NISA paid a standard fee to access the full set of data published by P&I. Some 434 investment management firms responded to the online questionnaire. To qualify, a firm must manage assets for U.S. institutional tax-exempt clients, such as qualified retirement plans, endowments or foundations, and answer the minimum required questions. Other survey participants may have reported overlay strategies on a basis other than notional values and, as such, direct comparison and rankings may not be appropriate. Visit www.pionline.com for more details, including past rankings and methodology.

Market-based risk is associated with the underlying market exposure, to include general equity, interest rate and other risks. Counterparty risk could include a counterparty default, where a loss on uncollateralized mark-to-market could be incurred by the client and new positions would need to be put in place to maintain exposure. There will likely be some amount of tracking error, or basis risk, between the derivative portfolios used to replicate exposure and the underlying benchmarks. Instrument liquidity risk could impact the ability to implement trades or could increase the transaction costs associated with trades. Operationally, strategies that involve executing trades across multiple exchanges, countries, and currencies introduce operational risks between the custodian, dealers, and asset managers.

Disclaimer: By accepting this material, you acknowledge, understand and accept the following:

This material has been prepared by NISA Investment Advisors, LLC (“NISA”). This material is subject to change without notice. This document is for information and illustrative purposes only. It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action, including without limitation as those terms are used in any applicable law or regulation. This information is provided with the understanding that with respect to the material provided herein (i) NISA is not acting in a fiduciary or advisory capacity under any contract with you, or any applicable law or regulation, (ii) that you will make your own independent decision with respect to any course of action in connection herewith, as to whether such course of action is appropriate or proper based on your own judgment and your specific circumstances and objectives, (iii) that you are capable of understanding and assessing the merits of a course of action and evaluating investment risks independently, and (iv) to the extent you are acting with respect to an ERISA plan, you are deemed to represent to NISA that you qualify and shall be treated as an independent fiduciary for purposes of applicable regulation. NISA does not purport to and does not, in any fashion, provide tax, accounting, actuarial, recordkeeping, legal, broker/dealer or any related services. You should consult your advisors with respect to these areas and the material presented herein. You may not rely on the material contained herein. NISA shall not have any liability for any damages of any kind whatsoever relating to this material. No part of this document may be reproduced in any manner, in whole or in part, without the written permission of NISA except for your internal use. This material is being provided to you at no cost and any fees paid by you to NISA are solely for the provision of investment management services pursuant to a written agreement. All of the foregoing statements apply regardless of (i) whether you now currently or may in the future become a client of NISA and (ii) the terms contained in any applicable investment management agreement or similar contract between you and NISA.