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Liability Driven Investments..

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  1. #11

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    They are not on the brink of collapse. Your house of cards is well and fine. I don't know what else I can be explaining. Just on standalone perspective, I think lower risk management for the UK pension fund is better. I think managing funds by trading it like a hedge fund is something your regular citizen may not be aware of and there are other ways to hedge and match assets to liabilities that don't involve 100% loss of principal of a pension. I think everyone is giving the fund and govt and banks too easy of a pass by not criticing them for the boe nonsense. If ppl are upset at a statement about gas bill and can give enough stink that they will back track an announced tax cut, then you have the ability to give feedback that will yield a response. This is far more important than the gas.


  2. #12

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    Quote Originally Posted by sarsi:
    I have the same exact question. I'm pointing at the fire as the reason and that should be enough but it isn't. We're always piecing together info on our end to help explain but if we disagree on what the problem or risk is, unless someone leaks the trade docs, no one is taking anyone else's words for truth so there's no need to sweat the details for once. You just need to consider a) Are you ok with the pension funds being managed like how a hedge fund trades with its clients. Prudently as always but there is a risk of complete loss of investment b) this style of fund management involves trading on margin. Again not recklessly of course but the potential risk is 100% and more. C) fund will always need to keep available a margin buffer and a bucket of "eligible collateral" as back up so it can be used as and when. This amount even if not part of the trade is potentially at stake if u don't meet a margin call. Basically your fund value is a backup guarantee.
    Evidence, facts? As I asked before why is no one else seeing what you are seeing especially after a week of scrutiny? No financial reporter has spotted the glaring risk you have seen? No financial watchdog?

  3. #13

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    Nobody is doomed. And this is why I am freaking out. You just got told in national newspaper your pension fund is trading to max return to pensioners just like a hedge fund. There was a scramble for fund to find money to post as collateral because one of the positions held by the fund required more otherwise will be(and was?) In fact liquidated to make up for it (there was fund value lost wasn't there? How much. Your newspaper didn't ask because they didn't even think it). This sparked or Led to a wider market sell off (all inconsistent details from articles) that ultimately require BOE to step in which they did by buying gilts to stop yields from rising (again no newspaper asked exactly how is that helping the fund and posting margin). The margin requirements was for a particular trade and not because of actual fund solvency issues so it's all kosher. Blackrock comes on to explain about the the whole thing and how the a firesale of assets if margin is not met can trigger a wider market sell off. he ends by saying this is part of a strategy and normally nothing of this sort ever happens because it is a slow moving market. This was because of unexpected turbulence from the tax cut bs your govt threw at the market. Really the benefits from this ldi has not been fully realized and there is so much more that can be achieved and right now we are limited in what we can do because the fund is under margined.

    This isn't my view. It's on your national newspapers. I have no idea why people are asking me to explain what the issue is. I'm pointing right at it. I am freaking the hell out for you.


  4. #14

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    Original Post Deleted
    A wise old man said asset rich but cash poor.
    TheBrit and bdw like this.

  5. #15

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    This must be what an anxiety attack feels like. Judging from reactions and silence and likes on other posts, maybe it's me telling you there's a problem that's causing the doubt so don't let me get in the way. I never said anything about brink of collapse solvency issue liquidity problem - that's all from DeletedUser's commentary to what I'm saying so at least for now pls don't read into this issue as it's some argument or exchange of opinions. what I'm saying isn't a response to someone else it's just my message and dull old financial advice, Your pension fund should not be managed like a hedge fund because hedge fund takes a lot of market and trading risk that is far higher than you are used to. I think your fund manager is being a little cavalier from the recent news and no harm giving some heat to them. What I really think uk should be doing is to completely depart from the hedge fund model or cap it up to you. But don't take ur eye off it because ur fund is now eligible collateral and if all goes well, nothing happens.


  6. #16

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    let me find Matt's newsletter.. I think I get it. Don't worry.. Will find it.


  7. #17

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    Very interesting read... Closer to understanding the very basics.

    Pay walled.. Perhaps someone can find this published for free somewhere.

    https://www.bloomberg.com/opinion/ar...t-margin-calls


    https://www.bloomberg.com/account/ne...rs/money-stuff

    Last edited by shri; 03-10-2022 at 09:04 PM.

  8. #18

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    Quote Originally Posted by sarsi:
    This must be what an anxiety attack feels like. Judging from reactions and silence and likes on other posts, maybe it's me telling you there's a problem that's causing the doubt so don't let me get in the way. I never said anything about brink of collapse solvency issue liquidity problem - that's all from DeletedUser's commentary to what I'm saying so at least for now pls don't read into this issue as it's some argument or exchange of opinions. what I'm saying isn't a response to someone else it's just my message and dull old financial advice, Your pension fund should not be managed like a hedge fund because hedge fund takes a lot of market and trading risk that is far higher than you are used to. I think your fund manager is being a little cavalier from the recent news and no harm giving some heat to them. What I really think uk should be doing is to completely depart from the hedge fund model or cap it up to you. But don't take ur eye off it because ur fund is now eligible collateral and if all goes well, nothing happens.
    You are clearly passionate about this whereas everyone else seems to see no issue. I am not criticising you just trying to understand the gulf.

    I don't have a private pension.

  9. #19

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    Test. Full post just doesn't show up past my last cut off even w browser change. I try later

    Last edited by sarsi; 03-10-2022 at 11:59 PM.

  10. #20

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    As others have pointed out LDI is not an issue (and of course is good risk management).

    My experience is the issues are caused by fund manager innovation marketed without appropriate accounting of the liquidity risk.

    just like interest rates have a term structure (e.g. different rates for 5 year bond than for a 30 year), so do the credit spread on bonds (the interest paid above a government bond that companies pay for the greater risk they represent). In general the rate (and spread) is lower for longer term vs shorter term.

    Some clever person said whilst LDI requires us to match the interest rate risk, why don’t we still capture the higher spread at say 5 years by buying a 5 year bond from say Unilever and then use a ‘swap’ to change the interest rate duration to that of my liability say 30 years.

    All sounds clever until you think about how you pay your margin call on the swap. So like we saw if interest rates fall a great amount maybe the value of the bond can fall 50% or more, this is fine under LDI as the liability will also fall 50% and if I just held a 30 year bond no worries.

    However as I used a swap I now need to pay cash of 50% of all my fund right now, this requires me to sell my assets under a fire sale eroding value, I may even have very illiquid assets and can’t sell them, I may go broke or will have to loan money at very poor terms.

    Clearly Solvency regimes haven’t correctly calibrated the liquidity risk which would normally make floating this type of risk unviable.

    hullexile likes this.

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