Specialist
Executive at Legal & General Group plc
Agenda
- LDI (liability-driven investment) evolution against current market uncertainty
- Likelihood of runs in the gilt market again
- Liquidity risks pertaining to pension funds
- Basis points to exhaustion and current deleveraging
Questions
1.
What is an LDI [liability-driven investment] strategy, and what happened after Liz Truss’s policy announcements?
2.
How does mortality improvement play a role? Has this led to pension funds having to take out more LDI strategies?
3.
What has been the impact on companies’ balance sheets that have defined benefit pension plans?
4.
Was there ever a risk of insolvency, or was it just short-term liquidity?
5.
Do you have a potential percentage figure for the schemes that weren’t at risk of insolvency?
6.
Could there be any read across to the issues in Europe or the US?
7.
How do you think LDI strategies will evolve, given the current macro uncertainty and outlook?
8.
Does the potential lower asset return represent a risk to benefit plans?
9.
Is the current regulatory environment sufficient or does there need to be more?
10.
To what degree do LDI providers advise their clients? Is there propensity or potential for a lawsuit or claim down the line?
11.
You mentioned that it’s quite opaque looking at pension funds and there might be an update from the regulator soon. When could we see this happen?
12.
Given many pension schemes will have seen their funding positions improve, it could be that pension buyouts accelerate. Is there any reason this may or may not be the case?
13.
Why did some pension funds assume LDI on gilts was almost a risk-free strategy?
14.
How would you think about the scale of loss vs the potential target strategy schemes would have sustained?
15.
What are the mechanics behind the implementation of swap contracts for LDI?
16.
How far through the process of normalising their collateral are pension funds?
17.
Has there been a material change in the willingness of LDI providers to use a high degree of leverage?
18.
As Liz Truss’s government announced the mini-budget, when did LDI providers start to realise there was a problem and begin warning clients?
19.
Why was there so much selling pressure on gilts if they could potentially be used as collateral?
20.
Should we have seen pressure on any other asset classes?
21.
Could you break down what a standard collateral waterfall looks like, perhaps by style of asset and size?
22.
To what extent are derivatives used for hedging vs leverage and potential leverage levels used?
23.
Do you have a feel for the proportion of interest swap contracts vs repo being used?
24.
What was the impact of the initial and subsequent margin calls, and how are they calculated?
25.
What do pension funds normally do vs fixed income and bonds and their usage of synthetic products?
26.
What is the probability of something similar to the scenario we’ve just seen happening again?
27.
Do you know how pension funds try to spot or select relative value opportunities?
28.
What do you envision happening to the size of unfunded liabilities if BoE [Bank of England] interest rates continue to rise? How can you see funds behaving?
29.
How are LDI strategies recorded in pension funds’ asset values? Is it on a look-through basis with every line item and the LDI consolidated and the fund’s disclosed NAV [net asset value], or are they bundled?
30.
How do you see basis points to exhaustion evolving? What’s the average exposure?
31.
Do you think the new 300-350bps cushion is sufficient? How do pension funds stress test?
32.
How can pension funds continue to provide stability? Are any other material risks potentially being overlooked?
33.
Do you think we’ll see liability-linked income strategies at the retail level in the future?
34.
Was it right for the BoE to step in and behave the way it did?
35.
Do you think the BoE’s actions helped bolster its credibility at a time when it’s needed? Does the new overnight facility it’s created make sense and was it the appropriate action?
36.
Could the support for the pension fund industry lead to more risky behaviour and a feeling of safety?
37.
Is there anything else interesting within UK pension funds that we haven’t touched on?
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