Processing hold-ups at US custody bank exacerbated UK pension sell-off
Northern Trust, a large US custody bank, was overwhelmed by a slew of margin calls during the UK government bond market turmoil, hampering the ability of pension funds to raise cash, according to several people involved in the trades.
Processing hold-ups at Northern Trust — which acts as a depository for two of the biggest liability-driven investment managers caught up by the gilt sell-off, Legal & General Investment Management and Insight Investment — had to redeploy staff from its US headquarters to help with the workload, according to two people with knowledge of the bank’s operations.
UK pension funds were faced with sudden and escalating demands for cash following a steep sell-off in gilts after chancellor Kwasi Kwarteng’s ill-fated “mini” Budget on September 23.
An executive at a rival custody bank said Northern Trust used more manual processing than other players in the market, which predominantly use automated processing. Another competitor added that Northern Trust’s role as depository for two of the largest LDI managers created a concentration of stress on its operations.
Northern Trust, which is headquartered in Chicago, declined to comment.
The bank is currently being investigated by the UK’s Financial Conduct Authority as part of its two-year probe into the failings of former star fund manager Neil Woodford’s investment business.
Northern Trust was depository for the £3.7bn Woodford Equity Income fund, which closed in 2019 after Woodford got caught in a liquidity crisis of his own making, sparking the biggest UK investment scandal for a decade.
This story originally appeared on: Financial Times - Author:Owen Walker
