'Total sh*tshow': Inside the panic over pension funds before major Bank of England intervention ➡️ Some estimated that UK pensions could have taken a £300m hit from the pandemonium 🔴 Exclusive from BenGartside
Little-known outside of financial circles, LDIs help to manage financial risks and are designed to stabilise the assets and liabilities within pensions.
The panic began on Sunday night, as asset manager Legal and General hurriedly called pension funds to demand emergency capital. Although irregular, calls such as Legal and General’s were not totally out of the blue – collateral has been requested for LDI trades multiple times this year, as rising yields meant more money was required from funds.”What was different in the last couple days”, one LDI trader told, “was the period of time. Rather than a week or two, it was days or hours. The market was very distressed.
By breakfast time, there were already fears of contagion, the spread of an economic crisis or disturbances from one market or region to another. One source told“panicked” messages from insurance companies would be filling up the Government in-trays, as fears of contagion spread. According to Sky News, the collateral calls led to a “run dynamic” similar to that experienced by Northern Rock in 2008. Had Governor Andrew Bailey not intervened, mass insolvencies of pension funds could have happened by the afternoon.announced by the Bank had a cooling effect, with one source comparing it to a pressure valve being let off. While the issue is not solved, most agree it has bought pension funds and asset managers a few weeks to plan and adapt.
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