Liability Driven Investments..

[sarsi]

No matter what the news say now or in future, I call bs on any claims that they, regulator or parties involved were not fully aware, didn't realize real market risk etc. They know for sure. They just assumed the risk would not materialize.

I didn't know USS was the biggest? or major PF scheme. Found online a while back..
https://www.uss.co.uk/news-and-views...ldi-strategies

I am really floored by this, not bcos of the risks Cambridge, Ox and Imp College pointed out if they went ahead w the LDI strategy. But bcos they specifically pointed out that this seemed to be a lot of risk taken for a strategy that isn't necessary nor conducive and likely to be detrimental to asset value in the long term.

[hullexile]

No matter what the news say now or in future, I call bs on any claims that they, regulator or parties involved were not fully aware, didn't realize real market risk etc. They know for sure. They just assumed the risk would not materialize.

I didn't know USS was the biggest? or major PF scheme. Found online a while back..
https://www.uss.co.uk/news-and-views...ldi-strategies

I am really floored by this, not bcos of the risks Cambridge, Ox and Imp College pointed out if they went ahead w the LDI strategy. But bcos they specifically pointed out that this seemed to be a lot of risk taken for a strategy that isn't necessary nor conducive and likely to be detrimental to asset value in the long term.

Again though that article by USS in October talks about "short term liquidity issues". Anyway it all seems to have blown over, as would be expected from short term liquidity issues, so I will put it to bed unless you have something recent?

[sarsi]

We good. USS link separate, generic for thread.

Qns the College asked USS in their letter.. some here had similar nagging concerns but couldn't really be sure..

 On what basis has USS determined that the current portfolio allocation leaves the scheme with too much risk?

 What analysis has been performed on the ability to manage 37% leverage in highly volatile markets? Please provide specific scenario analysis.

 Is there a compelling need to enact this approach in the short term given the changing Central Bank policies and the investigation of scheme redesign?

...we do not believe that the case for further purchase of inflation-linked bonds has been made and we believe the increase in leverage may introduce potentially significant risks into the scheme in a period of high market volatility... The evidence provided by USS needs to go to the scheme’s ability to pay pensions as they fall due rather than just its (wholly theoretical) ability to switch instantaneously to a selfsufficiency portfolio

[sarsi]

It’s more complicated than this in reality but this is gist of it.

No it isn't. This is exactly how wumao argue. When faced with evidence that basically proves that they were not only wrong but utterly bullshitting their way through the topic, they follow on by arguing along as if yes this was totally within expectation and follow up with their same wrong concept w/o alluding to the fact it's wrong.

I think you have managed to come off looking right prob bcos you were up against ppl who just got too tired arguing their pt, shackled by their own principles and wanted to portray argument properly w/o using the disinfo style you use, bulldozing over everything that didn't make sense for your claim or ppl who were too kind to have a full on argument bcos that would require completely shredding apart everything you said as cock and bull. I don't feel bad at all for pointing this out bcos you asked for it. Why would you bother fixating on this at all? I gave you no grief, absolutely zero. No snide remarks nuthin. The forum bar 1 person thinks you were right. I don't ever mention it, so why even...the constant dick moves and baits to provoke a fight..

The mantra of up and down you keep saying like we too dumb to get it. I was not the only one who voiced this out. The LDI strategy is a false construct. It's a policy that theoretically matches assets to liabilities based on market price valuation. The funds adopt this strategy, then go on to make changes to other fund regulations on basis that this policy keeps the funds matched, otherwise there will be a mismatch.

Gap to self-sufficiency metric
We believe the proposed strategy is driven largely by a desire to reduce the volatility in the “gap to self-sufficiency” metric which is particularly affected by changes in real (i.e. after inflation) interest rates. (Buying large amounts of inflation-linked bonds reduces the volatility of the metric as, if real interest rates decline further, the value of index-linked bonds increases at the same time as the liability measure increases.) However, in an open scheme with a long time horizon and a strong covenant, there should be no need for USS to move to self-sufficiency, and a premature focus on the purchase of low return assets is likely to lead the scheme to have lower asset levels and less resilience in the future. A risk metric that focussed more directly on USS’ ability to pay benefits as they fall due in adverse circumstances would be a better and more useful approach.

Link to USS ltr
https://www.staff.admin.cam.ac.uk/sy...ent_letter.pdf

[Viktri]

The liability driven investments moniker was not the issue with the UK pensions. There's no one willing (I assume, otherwise they wouldn't need to deal with GILTs in the first place) to offer them a hedging contract so they need to hedge themselves. Imperfect hedge = a mismatch of liquidity = trouble when the cash flow side can't spit out cash. But the government can bail them out, although of course there's a small cost.

But the UK pension scheme is also underfunded, which is a separate issue, and the UK pension is using leverage to make up the gap (which was exacerbated in 2008). From what I understand reading FT and Bloomberg (as my sources), UK pension fund did suffer some actual losses, not just temporary losses, but it's nothing major. The leverage that they need to use made them more sensitive to the margin call, but they have the longer term assets so it was a temporary phenomenon.

[sarsi]

Yes..moniker not the issue.. a PF doesn't need liability driven strategy at all. It's outlook is only LT..

BUT since this is the exact thread and my worry then was v much bcos no one seem to realize upfront the noose UK's tied around its neck by investing its PF funds in investments that are only margin traded.. but since the Guardian article said it out loud, I'm still worried but not like before cuz they have notice of the issue. So feel free to discuss and disagree..