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


As colorful lights and smoke machines filled a cavernous showroom in Liverpool, the big and good of Britain’s pension industry sipped cocktails and champagne to the sound of Journey’s ‘Don’t Stop Believin” .

The self-confidence of a generally stuffy industry had certainly been tested by a few chaotic weeks. Unprecedented turmoil in government securities markets following the UK government’s ‘mini’ budget on September 23 had triggered a wave of margin calls that forced pension fund administrators and investment managers scrambling to raise hundreds of billions of pounds of capital.

“It’s been absolute madness, but we’ve all survived this far,” shouted a director attending the Pensions and Life Savings Association conference, brandishing an Amundi-branded gin cocktail.

The mood at the conference, which was attended by 1,000 retired professionals, was markedly different from previous years, after the crisis shone a light on a little-known corner of the industry nationwide.

“Normally I wouldn’t watch hourly gilt yield movements on my cell phone,” said Ian Burns, head of investment consultancy Buck.

“[Usually] there would be more mixing here, but there was more business this year, due to the volatility of the gilts. It was not normal”.

The three key companies in liability-driven investing (LDI) – the widely used hedging mechanisms that ran into trouble when long-term gilt yields rose unexpectedly – ​​were particularly rare at the event. .

Despite sponsoring the conference, representatives from BlackRock and Insight Investment were nowhere to be found. Legal & General also had a reduced presence.

“LGIM looks rather sheepish over there,” an official at BNP Paribas Asset Management noted. “They were one of the loudest voices pushing this stuff, now it’s all exploded.”

Consultants were also significantly thinner in the field, the person said.

But Tim Manuel, manning a booth for Aon, noted the higher-than-usual media presence. “There are actually a lot of journalists here. They said “I don’t normally come to this, but my editor told me to come down there”.

As delegates mingled over wine and beer, they swapped war stories of the chaos and disorder they had faced responding to margin calls to bolster their plans’ cash reserves. .

Fund managers at Newton Investment Management had had to raise between £5m and hundreds of millions for retirement clients, often working late into the night. “These guys have been chained to their desks for two weeks,” a person familiar with the company said.

Burns recalled having to ask a trustee “to approve a midnight cash call while they were on vacation overseas. . . Decisions like this are normally made at quarterly meetings.”

An administrator has signed £50million in asset liquidation orders from his bike to respond to appeals. “Our second warranty call was about a week ago. It needed fixing so quickly…I was on my bike when I got a call from the system manager. I had to come down to sign the papers,” the trustee said.

Outside conference sessions on the cost of living crisis, executives were receiving calls from pension customers rushing to shore up their collateral before the Bank of England ended its temporary plan to buy money on Friday. obligations.

“A number of programs we work with are scrambling to maintain their LDI coverage,” said Jacqui Reid, a lawyer who ran a booth for Sackers, the law firm, where delegates were offered bacon rolls. and sausages.

“In the short term, there is a major problem because the systems must provide large amounts of guarantees (hundreds of millions). Some employers provide short-term loans to plans and we also see employers with more than one plan in their group applying for cross-plan loans, when a plan has excess cash.

While the government has made another U-turn – reversing its proposals for unfunded corporate tax cuts – pension funds could still get a reprieve if markets stabilize. But the industry faces a new reality of more conservative risk management where leverage will need to be reduced quickly.

“We have safeguards in place to a large extent, and we are still receiving more,” said a project administrator from a major UK transport group. “But that’s a huge amount of assets to accumulate as collateral for the foreseeable future.”

A National Grid administrator expressed similar concerns over the BoE’s decision to withdraw support for the gilt market by the end of the week. “I can’t think of what [Andrew Bailey, BoE governor] thought with this ad,” they said. “We are well capitalized so we can get by, but I worry about the wider environment.”


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