UK pension funds call on Bank of England to extend bond purchases
The UK pension industry is calling on the Bank of England to extend its emergency bond-buying programme past Friday on concerns trustees do not have sufficient time to shore up their portfolios against further shocks.
A rout in UK government bonds sparked by Kwasi Kwarteng’s “mini” Budget of unfunded tax cuts on September 23 pushed the UK’s pension industry into a vicious circle of forced asset sales. The BoE’s intervention five days later stabilised the market — but with its conclusion looming on Friday, industry participants are worried about another “cliff edge”.
“Giving pension funds a two-week window to get things in order was not a good idea because it made them into forced sellers and didn’t give much thought to the nature of pension fund assets and how quickly they can be turned into cash,” said Mark Hedges, a professional trustee with Capital Cranfield Pension Trustees Limited.
“Liquidity, liquidity, liquidity,” said Simon Bentley, head of UK solutions client portfolio management at Columbia Threadneedle. “It’s been underrated in the industry. There’ll be more focus on it going forward.”
Bentley said schemes “still want hedges in place”. The London-based executive echoed that view, saying, “almost everyone wants to keep as much of the LDI coverage as possible . . . People who decide to cut are cutting at the edges.”
Schemes, managers and their counterparties are also reviewing operational bottlenecks to ensure smooth transfer of collateral.
Sonja Laud, chief investment officer at Legal and General Investment Management, one of the biggest players in the market, said a review of LDI “needs to evolve around operational processes: where were the bottlenecks and the pain points. The mismatch was the time to get the collateral — there was the money — you just couldn’t get to it.”
This story originally appeared on: Financial Times - Author:Harriet Agnew
