The recent gilt market turmoil has had a profound impact on the investment strategies and journey plans of defined benefit pension schemes. As rising yields caused spiralling demands for collateral from liability hedging strategies, schemes were forced to realise other investments, often at unattractive prices.
Schemes that were most challenged were often in pooled LDI arrangements, more highly levered and slow to act in realising the necessary liquidity to meet collateral calls. Schemes that have been unable to maintain their hedging arrangements may have been sorely punished in recent weeks as markets have settled and yields have fallen sharply.
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