We share a brief essay on Liability Driven Investment (LDI) and the recent market turmoil in the UK Defined Benefit (DB) Pension Schemes.
As you may be aware, the recent market volatility has resulted in a spotlight being turned on the oversight and risk management of the £1.5tn DB pension industry in the UK. In this essay, we explore the mechanics of the issues and highlight the likely areas of dispute which will give rise to forensic analysis litigation.
We discuss the use of LDI to reduce the volatility of pension fund deficits and the shift in asset allocation towards bonds. We also explore the liquidity risks associated with LDI strategies, particularly when using derivative strategies as alternatives to buying gilts.