1,000 attendees at annual conference share experiences over cocktails after ‘mini’ Budget chaos shakes industry

‘It’s been absolute madness’: pension managers swap horror stories

As coloured lights and smoke machines filled a cavernous exhibition hall in Liverpool, the great and good of the UK pensions industry sipped cocktails and champagne to the strains of Journey’s “Don’t Stop Believin’”.
The self-belief of a usually staid industry had certainly been put to the test by a chaotic couple of weeks. Unprecedented ructions in the gilt markets following the British government’s “mini” Budget on September 23 had unleashed a wave of margin calls that left pension trustees and investment managers scrambling to raise hundreds of billions of pounds in capital.
“It’s been absolute madness, but we’ve all survived this far,” a trustee attending the Pensions and Lifetime Savings Association Conference shouted over the music, brandishing an Amundi-branded gin cocktail.

Outside conference sessions on the cost of living crisis, executives were taking calls from pension clients scrambling to shore up their collateral before the Bank of England was due to end its temporary bond-buying programme on Friday.
“A number of schemes we work with are scrambling to maintain their LDI hedges,” said Jacqui Reid, a lawyer who was fronting a stand for Sackers, the law firm, where delegates were offered bacon and sausage rolls.
“In the short term there is a sizeable problem as schemes have to post significant amounts of collateral (hundreds of millions). Some employers are providing short-term loans to schemes and we are also seeing employers with more than one scheme in their group requesting inter-scheme loans, where a scheme does have surplus cash.”
As the government performed yet another U-turn — reversing its proposed unfunded corporate tax cuts — pension funds may yet get a reprieve if markets settle. But the industry is facing a new reality of more conservative risk management where leverage will have to be rapidly reduced.
“We have collateral in place to a significant degree, and we still have more coming in,” said a trustee at the scheme of a major UK transport group. “But that’s an awful lot of assets to have stacked up as collateral for the foreseeable future.”
A trustee at National Grid voiced similar concerns about the BoE’s decision to withdraw its support for the gilt market by the end of the week. “I can’t think what [Andrew Bailey, BoE governor] was thinking with that announcement,” they said. “We’re well capitalised so we can ride it out, but I’m worried about the wider environment.”
This story originally appeared on: Financial Times - Author:Adrienne Klasa