February 4, 2023

Investment advice must improve after the LDI crisis:

The liability-driven in crisis caused ripples in the pensions market and trustees are taking a step back to reassess the viability of LDI products and take stock of what happened and why. The defined benefit (DB) pensions sector was at the centre of the LDI crisis last week that caused a liquidity squeeze and forced the Bank of England to start temporarily buying long-dated gilts. The value-at-risk (VaR) model has been one of the most common risk measures used in the industry for the past decade or so. Advice from consultants has said that when schemes increase their hedge ratio, their VaR ratio falls, and then in turn reduces the scheme’s risks.  All trustees do a good job but “need to raise their game” because some of the products trustees need to deal with require a lot more understanding of technical details.

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What will bee the long-term impact of the LDI crisis?

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