FPC welcomes progress on resilience for LDI funds

As the UK progresses towards a General Election this year, it is likely the Conservative Party would rather not be reminded of the Mini Budget in 2022 which has been widely condemned as a fiscal disaster.

Yet the Bank of England released a report this week praising some of the UK’s financial watchdogs for attempting to repair some of the damage done from the Mini Budget’s ensuing gilt crisis, and for ensuring that those reliant on investing in government bonds to manage their risks are better protected in future.

This week we report on the Financial Policy Committee (FPC) meeting held on 27 March which welcomed the “continued progress in the implementation of the resilience standard the FPC recommended for LDI funds, and several steps had been taken by authorities to ensure that it would be met on an ongoing basis”.

The FPC observed that this resilience standard – brought in following recommendations from the BoE – was continuing to function well, with funds maintaining higher levels of resilience compared with prior to what it calls “the LDI episode” in September 2022.

The BoE gives high praise to The Pensions Regulator and the Financial Conduct Authority for their efforts to make the markets more resilient to gilt shocks, although the task is far from complete.

The FPC says more transparency and information is needed to help keep investors on top of their liquidity exposure and to manage risk. It seems the effects of the Mini Budget will be felt long after the electorate has gone to the polls.

In other news, Tim Crawmer and Frasat Shah of Payden & Rygel tell us that higher yields are attracting more demand from investors.

Derisking is one attraction, as investors lock in gains made from stronger equity markets, but also the asset class looks less volatile than its government bond counterpart going forward.

They say: “Global high yield is a lower duration asset class and will be less impacted by what happens with government bond yields and more impacted by credit quality and how strong the economy is. These things are positive for the market.”

Finally, Ruud Smets, CIO, Theta Capital, writes that the time is ripe for investment in blockchain technology.

He says the sector moves in cycles in which price plays a very important role explaining that typically, prices start to rise. They attract new interest. There’s new buzz and projects that have been building through the bear market launch. Because the market is more receptive, it attracts new developer talent that build new projects, and those plant the seeds for the next cycle. And that flywheel continues until you hit the exuberance stage. Then you get into a bubble and prices collapse. The excitement is gone and it’s back to building again until the new cycle.

He notes that we are in the early stages of a new cycle making blockchain technology worth a look, although investing in such a specialist market needs suitable expertise and should not be done without advice.”

Gill Wadsworth, Editor

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Ruud Smets, CIO, Theta Capital, writes that we know that blockchain technology developments move in cycles in which price plays a very important role.
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI) strategies received glowing commendations from the Bank of England in its March report.


Tim Crawmer, Payden & Rygel
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also, given that equities had a strong year last year, big funds have taken some chips off the table in equities and put them into fixed income.
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