Boris Mikhailov, Investment Strategist, Global Investment Solutions at Aviva Investors comments on the latest figures: “Pension scheme funding deficits fell in April in line with favourable market conditions, following a volatile start to the year for asset prices. Fears of trade wars eased, whilst at the same time the demand from LDI investors slowed down over the month. As a result the equity markets rallied and long-term gilt yields increased, causing assets to rise and liabilities to fall.
“With the volatility in the financial markets only likely to increase, so will the impact on the funding positions of pension schemes going forward. However, the volatility of funding positions can be managed using a wide range of investment techniques and strategies.
“For example, the Liability Driven Investing (LDI) strategy can be effectively used to manage interest rate and inflation risks. The recent volatility in the long-term gilt yields, where we saw the yields moving by +/- 20bps per annum, presented plenty of opportunities for flexible investors to take advantage as part of their LDI strategies. Later in May the Debt Management Office will issue the new fixed-interest gilt maturating in 2071 which will provide the longest duration fixed-interest gilt in the market. This could be an opportune time to accelerate or restructure the existing hedging programs with a view of making them more effective.”
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