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Pensions decimated

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  1. #161

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    Oh and the very last paragraph of the link you inserted

    you need to read very carefully. Yes I know that is the agg just of the schemes in deficit

    The aggregate deficit of the schemes in deficit at the end of September 2022 was £5.3 billion, down from £14.3 billion at the end of August 2022.


  2. #162

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    Quote Originally Posted by ByeByeEngland:
    and I’m very much looking forward to you choking. These are the regulators you talk about that aren’t concerned

    https://www.ft.com/content/8f18987a-...9-392fa57242da

    when in a (pensions defect) hole stop digging
    Really? This is the best you can come up with?

    An article published on Aug 15th, before the market turmoil and all the questions about LDI appeared? This is how you seek to measure how the pension schemes did in the volatility? An article written before it all started?

    Ahahahahahahahahahaha.

    Keep it coming, what next, something from 2018 talking about the funding deficit four years ago?

    The link I posted shows how they actually performed during the “crisis”.
    ReleaseZeKraken likes this.

  3. #163

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    Quote Originally Posted by ByeByeEngland:
    Oh and the very last paragraph of the link you inserted

    you need to read very carefully. Yes I know that is the agg just of the schemes in deficit

    The aggregate deficit of the schemes in deficit at the end of September 2022 was £5.3 billion, down from £14.3 billion at the end of August 2022.
    Yes, funding status improved!!!!!!!!! In aggregate and the ones that were underfunded. Fucks sake!!!!

  4. #164

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    I would skewer and grill the entire TPR team if I could so obviously I think they are a bunch of wankers and I distrust now whatever they publish. But their methodology in the Oct 22 data says they don't hold sufficient data to capture impact of any structural changes to asset allocations nor to accurately capture changes in any leveraged LDI portfolios. I don't even know what that really means because isn't the PF portfolio atm leveraged... I can't even be bothered anymore w their bs.

    Again, I point to BOE holding up the roof now. No reason why PFs would be asking them to stay in so desperately if all was as the data suggests.


  5. #165

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    This thread is a twisted trainwreck but still not as ugly as the contortions on UK sunday politics shows this morning!

    Still feels like there is some 101 that needs explaining here...

    DB schemes are underfunded precisely because of low interest rates. In general nothing could be better for the schemes, and all long term insurers, than rates rising. If managers had invested all their funds in ultra low yielding long dated instruments (say 50 year gilts) over the last 15 years the hole would be waaay deeper and also permanently locked in. Yes you can say that the companies who made the DB commitments should cover the gap, but a gap of that scale would bankrupt many of those companies or at the very least cripple them, reduce jobs, investment, growth prospects, blah blah.

    Clearly full blown Sarsi-nomics doesnt sound good then... So Mr Prudent Pension Manager starts off (let's say in 2009) by putting 80% in bonds and 20% in stocks, hoping that in the long terms his stocks will flourish and close the gap. Note that we are already at the “casino” here...

    Rates stay low... this isn't working out. Yes my stocks are growing but I'm still making less than 2% on 80% of the fund when I need 5-6% on the total on a sustained basis to be anywhere near meeting my future liabilities. Mr Prudent Pension manager gets fired. A new whizkid steps up shouting about private equity opportunities and 10%+ returns. But there's no cash to buy them. If I just sell bonds I'm creating a massive mismatch between my rate sensitive liabilities and my assets (where only the bonds component can be relied upon to move the same way as the liabilities when rate move). Regulator won't let that happen, and with good reason.

    A pinstriped man walks in with a PowerPoint on derivatives. Turns out we can have all the matched rate exposure we need, but only need half as much tied up in the invested position. Sure, there's some fine print about margin calls but we've run the scenarios and unless some sort of twisted Dr Who baddie gets into power and decides to blow up the economy with a kamikaze chancellor sidekick then its all good. The risk managers mumble something about Brexit and political risk, but then watch TV and hear Teresa May saying Strong and Stable. Seems OK. Signed off.

    Half the bonds get sold, we load up on private equity, and away we go. Whizzkid is telling us we have make 20% returns each year on the PE and started closing our funding gap. Everyone is happy.

    Turns out a red white and blue brexit wasn't a thing after all...

    Pandemic! Rates tumble even further.

    Oh dear, Boris had a beer in his garden....

    Kami-kwasi does his thing...

    Once chaos averted, Mr Prudent Pensions Manager gets rehired and buys bonds yielding 6%. Happily his liabilities have also now come down in value thanks to higher rates, and he's now well matched. Everyone goes to the golf course... (until that illiquid private equity portfolio actually has to pony up some real cash in 2040 and prove the fair values the whizzkid has been reporting...).

    TheBrit, ndt and shri like this.

  6. #166

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    Quote Originally Posted by Peaky:
    This thread is a twisted trainwreck but still not as ugly as the contortions on UK sunday politics shows this morning!

    Still feels like there is some 101 that needs explaining here...

    DB schemes are underfunded precisely because of low interest rates. In general nothing could be better for the schemes, and all long term insurers, than rates rising. If managers had invested all their funds in ultra low yielding long dated instruments (say 50 year gilts) over the last 15 years the hole would be waaay deeper and also permanently locked in. Yes you can say that the companies who made the DB commitments should cover the gap, but a gap of that scale would bankrupt many of those companies or at the very least cripple them, reduce jobs, investment, growth prospects, blah blah.

    Clearly full blown Sarsi-nomics doesnt sound good then... So Mr Prudent Pension Manager starts off (let's say in 2009) by putting 80% in bonds and 20% in stocks, hoping that in the long terms his stocks will flourish and close the gap. Note that we are already at the “casino” here...

    Rates stay low... this isn't working out. Yes my stocks are growing but I'm still making less than 2% on 80% of the fund when I need 5-6% on the total on a sustained basis to be anywhere near meeting my future liabilities. Mr Prudent Pension manager gets fired. A new whizkid steps up shouting about private equity opportunities and 10%+ returns. But there's no cash to buy them. If I just sell bonds I'm creating a massive mismatch between my rate sensitive liabilities and my assets (where only the bonds component can be relied upon to move the same way as the liabilities when rate move). Regulator won't let that happen, and with good reason.

    A pinstriped man walks in with a PowerPoint on derivatives. Turns out we can have all the matched rate exposure we need, but only need half as much tied up in the invested position. Sure, there's some fine print about margin calls but we've run the scenarios and unless some sort of twisted Dr Who baddie gets into power and decides to blow up the economy with a kamikaze chancellor sidekick then its all good. The risk managers mumble something about Brexit and political risk, but then watch TV and hear Teresa May saying Strong and Stable. Seems OK. Signed off.

    Half the bonds get sold, we load up on private equity, and away we go. Whizzkid is telling us we have make 20% returns each year on the PE and started closing our funding gap. Everyone is happy.

    Turns out a red white and blue brexit wasn't a thing after all...

    Pandemic! Rates tumble even further.

    Oh dear, Boris had a beer in his garden....

    Kami-kwasi does his thing...

    Once chaos averted, Mr Prudent Pensions Manager gets rehired and buys bonds yielding 6%. Happily his liabilities have also now come down in value thanks to higher rates, and he's now well matched. Everyone goes to the golf course... (until that illiquid private equity portfolio actually has to pony up some real cash in 2040 and prove the fair values the whizzkid has been reporting...).

    The description makes sense and is what some of us guessed.
    But in the scenario, there is a derivative position covering the full (or more) notional size of the liabilities to provide the longer term CF, yet at the same time some money (50% ? 70%?) are used to invest in high yielding assets like Equities and PE funds.. it appears non-levered if you name the derivative 'hedging'...

    But any decent interest rate risk manager will see that derivative position (pay float receive fixed) as synthetically borrowing short term money to fund a long dated bond (i.e. the risk in PV01, i.e. value change due to interest rate movement, is extremely high).

    So no doubt the leverage is not high.. it is still a leverage position (1.5 ? 1.7 ? times leveraged)and definitely not someone one can declare as a 'long only' investment position.
    qhank and ByeByeEngland like this.

  7. #167

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    I’m in the middle ground, think I at least understand the concept of liability-driven investing, and not seeking to ridicule any particular viewpoint, but believe I fail to understand the following.

    1. Why an approach that exposes itself to market risk should not be considered irresponsible (cf. other “market mispricing events such as on the run/off the run LTCM, AAA AIG-insured products [thought those eventually came good according to reports more recently]).
    2. Why an appreciation of the difference between illiquidity and insolvency necessarily blurs into condoning a threat of the latter by ignoring (or indeed voluntarily taking) the risk of the former.
    3. Why treatment of institutional managers should differ from that of individuals.

    In short, why pension fund managers entering into strategies requiring a bailout should be exempt from ridicule other institutional fund managers or individuals would face in the same circumstances. The fact that notionally liabilities cost less in an environment of higher rates doesn’t obviate supply/demand characteristics in any particular market is a risk all participants have to live with, although obviously I do appreciate the fundamental logic of LDI.


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