Investment - Articles - LDI market smashes through the GBP1 trillion barrier


XPS Investment’s second Liability Driven Investment (LDI) survey reveals the initial challenges around LDI strategies are well and truly behind us. LDI is now commonplace for UK pension schemes and used as a very effective way to reduce risk for all sizes of pension schemes.

 Liability values of a typical pension scheme will have fluctuated by around 8% from peak to trough in relation to gilt yield movements over 2018. Using LDI strategies neutralises this impact, making funding levels more stable and pensions more predictable. XPS’s LDI survey 2019 confirms that the market continues to grow at a pace, as key findings include:

 • £1,024 billion of liabilities hedged in the UK pension market in 2018, an increase of 6% from 2017
 • 54% of UK pension scheme liabilities hedged in 2018
 • 92% of this year’s new mandates by number were pooled mandates, showing more small schemes entered the LDI market in 2018
 • 52% increase in the number of LDI mandates accessed via investment platforms and an overall increase of 12% on all LDI mandates in 2018
 • 86% of overall LDI liabilities were hedged using gilt-based derivatives, reflecting higher yields and that the majority of pension schemes are funded on a gilt-based measure
 • 87% of overall LDI liabilities hedged managed by The Big Three

 Simeon Willis, Chief Investment Officer at XPS Pensions Group said: “Those investors who initially dismissed LDI as being an elaborate solution to a theoretical problem weren’t seeing the bigger picture. We’ve known for some time that LDI, at its heart, protects a pension scheme from lower yield environments, which happens to be exactly the environment we find ourselves in today.

 “LDI isn’t about making money, it’s about reducing risk and more schemes, of all sizes, are realising this and taking action. Following another strong year in 2018, we are expecting to see the focus of growth continue to shift towards pooled mandates, as more and more smaller schemes enter the LDI market”

 Simeon continued: “With DB pension scheme liabilities estimated to total approximately £1.9 trillion and over £1 trillion of these hedged using LDI strategies, it shows that trustees, advisers and fund managers are now firmly taking control of their scheme’s future and not leaving it to chance. This is a great achievement for UK pension schemes.”
  

Back to Index


Similar News to this Story

PIMFA Women's Symposium tackles pivotal issues
Focusing on inclusion and the future of the industry, 500+ delegates heard from 80 expert speakers, including the Economic Secretary to the Treasury &
70 percent cut in capital rules red tape
The Financial Conduct Authority (FCA) is proposing streamlining the rules on the types of funds investment firms must hold to absorb losses and mainta
Rates set for May cut and more pruning later
Rates are widely expected to be cut in May. The markets are also pricing in around three more cuts for the rest of 2025. What it would mean for saving

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.