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“L&G made £80m a year selling pension products that forced the Bank of England into £65bn bailout
The Bank intervened after plunging markets forced pension funds to dump assets”
https://www.telegraph.co.uk/business...-bank-england/
Not a problem for regulators having this tulip poison the systemComment
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“Soaring bond yields in the wake of Kwasi Kwarteng’s mini-budget led to large cash calls on pension funds in relation to LDIs, which are derivatives meant to help insulate pension funds from the impact of inflation. The falling value of bonds led to funds being asked to put up more capital to backstop their investment positions.
L&G is one of the biggest providers of LDIs in the UK, alongside BlackRock and Columbia Threadneedle. At its capital markets day in 2018, L&G’s investment management arm (LGIM) revealed that it had a 42pc share of the LDI market in Britain.
The Jefferies analysts said L&G earns 0.2pc in fees on its LDI products and around £387bn of its assets under management relate to LDI funds, meaning it earns around £77m a year in revenue from these products.
Over the past two decades, pension funds have been encouraged by the Pensions Regulator to adopt LDI strategies to help match their liabilities with their assets.
However, the analysts also said the crisis over the last week could damage L&G’s reputation and trigger outflows from its funds.
They said: “The biggest risk for L&G is that this crisis has discredited the firm's risk management abilities. In the process, it's possible that this sparks outflows from LDI funds, as clients reallocate to alternative strategies, with lower liquidity risks.””
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"Bank confirms pension funds almost collapsed amid market meltdown
Official explains how promise to buy up to £65bn of government debt staved off destructive UK financial spiral
Pension funds managing vast sums on behalf of retired people across Britain came close to collapse amid an “unprecedented” meltdown in UK government bond markets after Kwasi Kwarteng’s mini-budget, the Bank of England has said.
Explaining its emergency intervention to calm turmoil in financial markets last week, the central bank said pension funds with more than £1tn invested in them came under severe strain with a “large number” in danger of going bust."
https://www.theguardian.com/business...arket-meltdown
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After over a decade of near-zero interest rates, it's not surprising that a sudden dramatic step change would undermine some "creative" financial wizardry. Anything involving derivatives always makes me a little uneasy.
I wonder what else is vulnerable?Scoots still says that Apr 2020 didn't mark the start of a new stock bull market.Comment
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