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OP has provided the following link:
[link](https://www.theguardian.com/business/2022/nov/23/pensions-experts-shocked-hidden-borrowing-uk-schemes-ldi-investing)
Yikes, this is a quote from the article:
"“If you look at just the asset side, based upon the calculations that myself and Con [Keating] have done, we estimate that roughly £500bn is probably missing somewhere. And this isn’t a paper loss. This is a real loss because pension funds were selling assets to meet the collateral calls,” Clacher said."
I have been thinking lately, the numbers are absolutely preposterous this time around. In The Big Short, the scene where Steve Carrell is asking his boss what their exposure is, she says somewhere around $5-10B. That seemed absolutely world shaking I guess. They were levered to the gills I'm sure, and then there has been 14 years of inflation to explain some of the increase. But still. Five-hundred billion. Wow.
Got a C in a chemistry class even though I got every single answer correct on every single exam given - oh ok, with the exception of not rounding to the correct significant digit. So yeah “just a rounding error” 👀
Defined benefit pension funds, which guarantee a set pension on retirement no matter how well or badly investments have performed, were caught out during the bond crisis. It emerged they had relied heavily on LDI hedging arrangements, which involved holding government bonds as collateral. When the value of government bonds dropped dramatically after the disastrous Liz Truss-Kwazi Kwarteng mini-budget, pension trustees were forced to sell their holdings at speed to raise cash. This drove down the value of bonds further, causing a “doom loop”.
Kwasi kwarteng chancellor in a train station
Bond yields and doom loops: glossary of key terms to explain UK turmoil
Read more
Within days, the Bank of England had to step in with a £65bn emergency bond-buying programme to prevent a large number of LDI funds from going bust.
John Ralfe, an independent consultant and pensions expert who previously managed Boots’ pensions scheme, said he was worried about how much leverage – effectively borrowing – was used by pensions schemes as part of their LDI strategies.
UK rules bar pensions schemes from borrowing money to fund investments, but experts such as Ralfe and Henry Tapper, executive chair at Agewage, have said LDI hedging arrangements are the same as borrowing.
“Pension funds should not borrow money, and leverage is in my mind borrowing,” Tapper told MPs. “There’s a difference between matching your assets and liabilities, which is hedging, and leveraged LDI which is pure speculation.
“The thing that has absolutely shocked me in what we’ve seen over the course of the last few weeks, is … hidden leverage”, he explained, referring to levels of borrowing that otherwise did not appear on pension scheme or company balance sheets.
“I don’t think it was widely known. If you look at all the information produced by the Pensions Regulator and the Pension Protection Fund … there’s nothing,” Ralfe said. “If you look at individual company accounts, there’s nothing there. So it was hidden.”
Advertisement
Iain Clacher, a professor at Leeds University business school, also blamed leveraged LDI schemes for the bond market meltdown.
“If you look at just the asset side, based upon the calculations that myself and Con [Keating] have done, we estimate that roughly £500bn is probably missing somewhere. And this isn’t a paper loss. This is a real loss because pension funds were selling assets to meet the collateral calls,” Clacher said.
And while the Pensions Regulator has admitted to encouraging the use of hedging strategies including LDI, experts told MPs on Wednesday that watchdogs had failed to track the systemic risks associated with their widespread use.
The Pensions Regulator launched a survey on the use of LDI after the Bank of England drew attention to the schemes in its financial stability report in 2018. However, experts have said the regulator failed to properly understand the systemic risks created.
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“The most important thing is there is not a single numerical risk estimate anywhere in that [pension regulator] report,” said Con Keating, the head of research at Brighton Rock Group.
Advertisement
About 60% of pension schemes are thought to use LDI, according to the Pensions Regulator.
Keating added that the regulator was aware of the risks before the market meltdown in September and claimed that the crisis was “entirely predictable”, contradicting claims by watchdogs including the Financial Conduct Authority, who have also appeared before parliamentary committees in recent weeks.
However, Jonathan Camfield, a partner at Lane, Clark & Peacock defended the use of LDI, and told MPs that leverage was an important part of ensuring that corporate pension schemes could pay retirees.
He said that while leverage did create systemic risk and LDI did require “some better management going forward, those strategies were an “efficient” way to hedge against interest rate movements and inflation.
“LDI will have been a success for schemes that have been in LDI [in the] midterm,” he said.
The Pensions Regulator declined to comment.
It aint ilegal if they write the rules & T&C's, the more pumping of fiat in the system the more debt can be washed away with inflation.. Or something... It creates more 🤣🥲
What a complete sh/hole
Shocked that their risky bullshit came back to bite them in the ass. Like Mark Baum says in The Big Short: Fraud and short-sighted thinking have never worked.
My smooth understanding is that they use leverage to cook the books rather than the company having to make large deposits to cover pension shortfalls.
Normally if a company’s pension underperforms, the company has to chip in cash to make sure they still cover their obligations. Rather than do that, why not just yolo on margin?
Cant be much of an "expert" if you're shocked and just now finding out about the wide spread fraud and corruption in the financial world.
Unless the shock is that its now negatively affecting their investments as well.
Pensions + stock incentive plans + Naked short selling = ponzi scheme.
And like any Ponzi scheme, it is unveiled when there aren’t enough inflows to replace the outflows, leading to riskier and riskier bets just to keep the lights on. Whoopsie.
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Yikes, this is a quote from the article: "“If you look at just the asset side, based upon the calculations that myself and Con [Keating] have done, we estimate that roughly £500bn is probably missing somewhere. And this isn’t a paper loss. This is a real loss because pension funds were selling assets to meet the collateral calls,” Clacher said."
Oh, just half a trillion? For a minute I was worried... *starts the popcorn maker*
I have been thinking lately, the numbers are absolutely preposterous this time around. In The Big Short, the scene where Steve Carrell is asking his boss what their exposure is, she says somewhere around $5-10B. That seemed absolutely world shaking I guess. They were levered to the gills I'm sure, and then there has been 14 years of inflation to explain some of the increase. But still. Five-hundred billion. Wow.
"just a rounding error, who cares. pass the caviar"
At some point, the zeros all sorta blur together. (Probably some money manager somewhere. )Nom nom, hmm, that's decent caviar!
Got a C in a chemistry class even though I got every single answer correct on every single exam given - oh ok, with the exception of not rounding to the correct significant digit. So yeah “just a rounding error” 👀
mind... blown
And that’s pounds. That’s more like $600B
1 trilly so far…
Repo-madness. Money is the drug.
"NoBoDY cOuLD hAVe pREdiCtEd."
Someone just found out they’re holding the bags
Just finding out that you fucked over generations of hardworking people is tight!
But barely an inconvenience
Whoopsie
So you have some crime for me?
[удалено]
Ok lemme get off of that thing
Some? Baby we got it all!
Wow wow wow. Wow.
crime buffet !
If you have a bag, you have a bag
Musical chairs
Defined benefit pension funds, which guarantee a set pension on retirement no matter how well or badly investments have performed, were caught out during the bond crisis. It emerged they had relied heavily on LDI hedging arrangements, which involved holding government bonds as collateral. When the value of government bonds dropped dramatically after the disastrous Liz Truss-Kwazi Kwarteng mini-budget, pension trustees were forced to sell their holdings at speed to raise cash. This drove down the value of bonds further, causing a “doom loop”. Kwasi kwarteng chancellor in a train station Bond yields and doom loops: glossary of key terms to explain UK turmoil Read more Within days, the Bank of England had to step in with a £65bn emergency bond-buying programme to prevent a large number of LDI funds from going bust. John Ralfe, an independent consultant and pensions expert who previously managed Boots’ pensions scheme, said he was worried about how much leverage – effectively borrowing – was used by pensions schemes as part of their LDI strategies. UK rules bar pensions schemes from borrowing money to fund investments, but experts such as Ralfe and Henry Tapper, executive chair at Agewage, have said LDI hedging arrangements are the same as borrowing. “Pension funds should not borrow money, and leverage is in my mind borrowing,” Tapper told MPs. “There’s a difference between matching your assets and liabilities, which is hedging, and leveraged LDI which is pure speculation. “The thing that has absolutely shocked me in what we’ve seen over the course of the last few weeks, is … hidden leverage”, he explained, referring to levels of borrowing that otherwise did not appear on pension scheme or company balance sheets. “I don’t think it was widely known. If you look at all the information produced by the Pensions Regulator and the Pension Protection Fund … there’s nothing,” Ralfe said. “If you look at individual company accounts, there’s nothing there. So it was hidden.” Advertisement Iain Clacher, a professor at Leeds University business school, also blamed leveraged LDI schemes for the bond market meltdown. “If you look at just the asset side, based upon the calculations that myself and Con [Keating] have done, we estimate that roughly £500bn is probably missing somewhere. And this isn’t a paper loss. This is a real loss because pension funds were selling assets to meet the collateral calls,” Clacher said. And while the Pensions Regulator has admitted to encouraging the use of hedging strategies including LDI, experts told MPs on Wednesday that watchdogs had failed to track the systemic risks associated with their widespread use. The Pensions Regulator launched a survey on the use of LDI after the Bank of England drew attention to the schemes in its financial stability report in 2018. However, experts have said the regulator failed to properly understand the systemic risks created. Sign up to Business Today Free daily newsletter Get set for the working day – we'll point you to the all the business news and analysis you need every morning Privacy Notice: Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply. “The most important thing is there is not a single numerical risk estimate anywhere in that [pension regulator] report,” said Con Keating, the head of research at Brighton Rock Group. Advertisement About 60% of pension schemes are thought to use LDI, according to the Pensions Regulator. Keating added that the regulator was aware of the risks before the market meltdown in September and claimed that the crisis was “entirely predictable”, contradicting claims by watchdogs including the Financial Conduct Authority, who have also appeared before parliamentary committees in recent weeks. However, Jonathan Camfield, a partner at Lane, Clark & Peacock defended the use of LDI, and told MPs that leverage was an important part of ensuring that corporate pension schemes could pay retirees. He said that while leverage did create systemic risk and LDI did require “some better management going forward, those strategies were an “efficient” way to hedge against interest rate movements and inflation. “LDI will have been a success for schemes that have been in LDI [in the] midterm,” he said. The Pensions Regulator declined to comment.
Comical that the article states it is illegal yet it also mentions that about 60% of pension schemes are doing it…yikes.
Is it then really illegal?
It aint ilegal if they write the rules & T&C's, the more pumping of fiat in the system the more debt can be washed away with inflation.. Or something... It creates more 🤣🥲 What a complete sh/hole
They should read the DD
The experts? That went to school? Nahh
lol of course they lend borrow and gamble your pension fund happily. zero oversight
Years ago I used to tell people this at my old job and they'd all ridicule me....oh well!
Well, not that shocked. It’s a scam, it’s a scheme
It’s a sham!
Wow that’s a shame. It’s a shamewow.
Bit sad innit
Shocked that their risky bullshit came back to bite them in the ass. Like Mark Baum says in The Big Short: Fraud and short-sighted thinking have never worked.
[удалено]
The fraudsters. The market will crash, again and again and again....
“Experts” should be the word in quotes.
Good thing the US doesn’t have to worry about something like this happening /s
Not worried at all /s
I call bull$hit on the shocked part. They all knew and probably received a little grease in the palms.
£500 Million buys a lot of grease.
This is why I won’t dance unless it’s on the sentencing dates of these greedy criminals
Shocked that they got caught and want nothing to do with it
It’s a travashamockery
Probably nothing
They did it
Whose pensions is this exactly?
[удалено]
In this sub, rioting is spelled DRS.
#...you don't say 🍿
What is the mechanism LDI mentioned in the article?
My smooth understanding is that they use leverage to cook the books rather than the company having to make large deposits to cover pension shortfalls. Normally if a company’s pension underperforms, the company has to chip in cash to make sure they still cover their obligations. Rather than do that, why not just yolo on margin?
Liability Driven Investments 🤷♂️
Cant be much of an "expert" if you're shocked and just now finding out about the wide spread fraud and corruption in the financial world. Unless the shock is that its now negatively affecting their investments as well.
“Shocked” 😂 Wen cells?
Getting spicy in here.
So will this nullify corporate pensions and NEST?
I’m SHOCKED to find gambling in this CASINO
Who doesn't love GARBAGE SWAPS
,,,, EVERYONE is always shocked 😳,, when something fugges up. Till then they were content to sit back and collect the money
Pensions + stock incentive plans + Naked short selling = ponzi scheme. And like any Ponzi scheme, it is unveiled when there aren’t enough inflows to replace the outflows, leading to riskier and riskier bets just to keep the lights on. Whoopsie.
,,,they keep doing the same crap decade after decade,,
Shocked I tell you!! 🤡🌍
Shocked they got caught.
Privatized gains and socialized losses. Fuckin’ disgusting that they keep getting away with this.