Market moves: Legal & General notes the problems posed for clients by the speed of recent rate increases, asset managers limit withdrawals from property funds, and soaring gilt yields supercharge defined benefit scheme funding levels.
L&G acknowledges ‘challenges’ for clients
Legal & General has said the “unprecedented speed” of recent interest rate increases has “caused challenges” for its pension fund clients. In a trading update on October 4, the financial services provider outlined the position of its UK-based liability-driven investment arm. It said the Bank of England’s decision to buy long-dated gilts to restore orderly market conditions “helped to alleviate the pressure on our clients”. L&G added that it is now “work[ing] closely” with pension fund clients to iron out the hedging levels in their portfolios. The company also said that because Legal & General Investment Management — the brand its LDI business sits under — is an agent that acts between clients and market counterparties, there is “no balance sheet exposure”. Elsewhere in L&G’s trading update, the company said its annuity portfolio has not experienced any difficulty in meeting collateral calls. “We have not been forced sellers of gilts or bonds,” it said.
This article first appeared on FTAdviser.com
Schroders, Columbia Threadneedle and BlackRock limit redemptions
Three asset managers have limited redemptions on institutional real estate funds, according to the Financial Times. Schroders said it will make some redemptions previously due on October 3 as late as July 2023. Elsewhere, Columbia Threadneedle said volatile market conditions had compelled it to switch from daily to monthly payouts, the FT said. BlackRock also applied fresh restrictions on withdrawals.
Rising yields support DB funding levels
UK DB pension schemes have become more than 106 per cent funded on a long-term target basis following the market’s volatile reaction to the government’s September “mini” Budget, according to XPS Pensions Group. Schemes’ surpluses grew by £94bn during the month to September 29 2022, with gilt yields rising by 0.8 per cent and long-term inflation expectations dropping by 0.3 per cent over the period — which reduced the value of schemes’ liabilities. Elsewhere, Mercer’s own assessment of FTSE 350 companies’ schemes found that September’s collective month-end surplus fell to £5bn, compared with £9bn in August, although this measurement does not factor in the volatility that followed the fiscal statement. A 30-day analysis showed that surpluses increased to more than £100bn before the Bank of England intervened, making it the biggest variation for any comparable period going back to 2007. Liabilities dropped from £657bn at the end of August to £605bn at the end of September. Asset values also edged down to £610bn, compared with £666bn at the end of August.
