UK pension fund trustees felt they had the knowledge and skill to deal with the LDI crisis last year that resulted from the government’s mini-budget and caused a meltdown in the gilt market.
Research from Charles Staley Fiduciary Management showed 82% of defined benefit (DB) pension scheme trustees believed that they had the “knowledge and skills they needed to handle the crisis”.
DB trustees emerged from the LDI crisis with confidence in their LDI strategies largely intact, the firm said.
Sixty-eight professional DB trustees were polled and among the findings was that 72% of them were still confident using LDI – liability-driven investments – as a tool to manage risk.
Nearly 80% said they felt their scheme had the right governance in place to handle the LDI crisis.
Charles Stanley said a surprising finding was that 48% of trustees said that their appetite for illiquid investments had actually increased since the crisis.
The poll also reflected satisfaction with information received from consultants and fund managers – albeit evidence also showed that a number of schemes were reviewing their advisors or had already changed their LDI manager.
Client service and the ability of fund managers to make decisions without trustee input were highlighted as being more important to trustees.
Bob Campion, senior portfolio manager at Charles Stanley Fiduciary Management, said: “While a meltdown in the gilt market is now less likely, there is nothing that can be done to prevent it outright. So long as a vast portion of gilt investors continue to use leverage through liability-driven investment strategies another crash is always possible.
“We are living under the tacit agreement that the Bank of England will step in again to rescue the market if needed; otherwise without this unwritten promise, pension funds would have to abandon liability driven investment strategies. That would put a massive strain on UK plc.”
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