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Editorial
LDI: DOWN BUT NOT OUT
In the 1990s, Bill Clinton’s campaign manager, James Carville, announced that he no longer wanted to be reincarnated as the president, or the Pope or as a baseball star. “Now I would like to come back as the bond market,” he said. “You can intimidate everybody.” Carville announced this months after he started working with the new US president. An example of why the bond market can be terrifying for politicians presented itself in the UK following the mini budget at the end of September. The market did not warm to then chancellor Kwasi Kwarteng’s economic plans and the cost of government borrowing jumped sharply. The rise in gilt yields – from 3.47% to 4.99% on 30-year bonds – provided a headache for the government, the Bank of Eng- land, which “worked through the night” trying to solve the issue, and defined benefit pension schemes which use leverage in their liability-driven investment (LDI) strategies. The jump in gilt yields meant that they had to find cash to maintain their hedges, so many had to sell assets, including gilts.
The rapid rise in government borrowing costs provided a problem for many, although it did benefit the final salary schemes holding gilts as their funding position improved.
This is one of the reasons why the defined benefit schemes we spoke to for this month’s cover story intend to stick with LDI, despite the mainstream press questioning if pen- sion schemes could go bust over the rapid rise in gilt yields. Read our findings from page 18. We also look at how the wider bond markets are performing during the volatility we have seen on the back of rising costs and disappointing economic outlooks. Find out what is happening from page 24. Supply chains are no longer invisible. ESG-conscious stakeholders are turning their attention to corporates tackling potential human rights abuses in their supply chain. Find out how investors can help from page 32.
Our quarterly look at diversity examines why fund management teams and their lead- ers should be comprised of people from a wider range of backgrounds (page 46). This is followed by private equity, which is going through a change and is facing greater scrutiny. We take a closer look from page 50. Finally, we speak to Matthew Cox, investment director of charity Esmée Fairbairn, about complex strategies, greenwashing and volatility. Read what he has to say from page 14.
Mark Dunne Editor
m.dunne@portfolio-institutional.co.uk Issue 118 | November 2022 | portfolio institutional | 3
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