“It was absolutely amazing”: pension managers exchange horror stories

As colored lights and smoke machines filled a cavernous Liverpool exhibition hall, the great and good of the UK pension industry sipped cocktails and champagne to the tune of Journey’s Don’t Stop Believin’.

The confidence of an otherwise staid industry had certainly been tested by a few chaotic weeks. Unprecedented ruptures in gilt markets after the UK government’s ‘mini’ budget of September 23 had sparked a wave of margin calls that saw pension managers and investment managers scramble to raise hundreds of billions of pounds in capital.

“It was absolute madness, but we’ve all survived this far,” shouted a trustee attending the Pensions and Lifetime Savings Association conference over the music, waving an Amundi-brand gin cocktail.

The mood at the conference, attended by 1,000 pension experts, was markedly different from previous years after the crisis brought a little-known corner of the industry into national focus.

“In normal times, I wouldn’t be checking the Gilt yield every hour on my phone,” said Ian Burns, who presented the status of investment adviser Buck.

“[Usually] there would be more mixing here, but due to gilt volatility there was more trade this year. It wasn’t normal.”

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

Despite sponsorship of the conference, representatives from BlackRock and Insight Investment were nowhere to be seen. Legal & General was also less present.

“LGIM looks pretty embarrassed over there,” noted a manager at BNP Paribas Asset Management. “You were one of the loudest voices pushing this stuff, now it’s all blown up.”

Advisors are also significantly thinner on site, the person said.

But Tim Manuel, who manned a booth for Aon, noted the above average media exposure. “Actually, there are a lot of journalists here. They said, ‘I don’t usually get to it, but my editor said come down there’.”

As the delegates mingled over wine and beer, they traded war tales of the chaos and disorder they faced in order to meet margin calls to shore up the liquidity buffers of their plans.

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

Burns recalled having to ask a trustee “to authorize a cash call at midnight while they were abroad on holiday. . . Decisions like this are typically made at quarterly meetings.”

A trustee signed £50million in asset liquidation orders from his bike to fulfill calls. “Our second security call came in about a week ago. It had to be serviced so quickly. . . I was on my bike when the program director called me. I had to get out to sign the paperwork,” the trustee said.

Outside conference sessions on the cost-of-living crisis, executives took calls from pensioners scrambling to secure their collateral before the Bank of England was due to end its temporary bond-buying program on Friday.

“Some systems that we work with are struggling to maintain their LDI hedges,” said Jacqui Reid, a lawyer, who was standing in front of a booth owned by the Sackers law firm, where delegates were offered bacon and sausage rolls.

“There is a significant problem in the short term as the systems have to post significant amounts of collateral (hundreds of millions). Some employers provide short-term loans to schemes, and we also see employers with more than one scheme in their group applying for loans between schemes when one scheme has excess cash.”

As the government completed another U-turn – reversing its proposed unfunded corporate tax cuts – pension funds could still get some breathing space when markets calm down. But the industry is facing a new reality of more conservative risk management, where leverage must be reduced quickly.

“We have a significant amount of collateral in place and more coming in,” said a trustee of the plan for a major UK transport group. “But that’s a lot of wealth to have as collateral for the foreseeable future.”

A National Grid trustee expressed similar concerns about the BoE’s decision to withdraw its support for the gilt market by the end of the week. “I can’t imagine what [Andrew Bailey, BoE governor] thought with that announcement,” they said. “We’re well capitalized so we can take it, but I’m concerned about the wider environment.”

https://www.ft.com/content/593c4f8f-deab-449d-85f5-478831a53387 “It was absolutely amazing”: pension managers exchange horror stories

Adam Bradshaw

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