Liability-driven pension investing is still sound, says man who brought it to UK
The pension investment strategy that fuelled last week’s crisis in the UK financial markets was not designed to withstand such volatile moves, according to a leading City figure who helped introduce it.
The strategy, known as liability-driven investing (LDI), is at the centre of the pensions industry turmoil that last week prompted a £65bn Bank of England intervention as thousands of schemes teetered on the edge of default.
Dawid Konotey-Ahulu was part of a team at US bank Merrill Lynch that in 2003 developed LDI in a bid to “immunise” defined-benefit pension schemes against large movements in interest rates and inflation, he said.
But their vulnerabilities were exposed last week as gilt yields rose at an unprecedented pace following the chancellor’s “mini” Budget and thousands of pension plans struggled to meet emergency cash calls on their LDI contracts.
This story originally appeared on: Financial Times - Author:Josephine Cumbo
