>>Many market failures arise as this lesson is never learned, or if learned frequently forgotten.
The bankers were generally playing with somebody else's money and being obscenely rewarded through performance-related pay for doing so.
There is a parallel of sorts but...
Pension funds are massively regulated, trustees of the pension funds we are talking about generally receive either nothing or very modest fees that are emphatically not 'performance' related and they generally seek and heed the 'best' available advice - they have to. They are trying to ensure that members' pensions are paid and that has to be balanced where there are deficits with the ability of the sponsoring company to pay and the investment returns. Trustee boards have some scheme members on them.
The regulation and compliance is incredibly heavy. Even so, I suspect more 'guidance' will emanate very soon. There has been a statement issued which basically exhorts trustees to look at their operational and liquidity arrangements to make sure they meet needs. In other words, do their jobs.
The regulator acknowledges that trustees generally know what they are doing.
Our previous guidance included messaging for DB trustees and advisers in relation to liquidity plans for LDI strategies. The risk of gilt yields rising was well understood by trustees, advisers and LDI managers. Such risks are pre-planned by keeping aside sufficient proportions of liquid assets, which can then be sold to raise cash that can be posted as collateral.
However, it was the unprecedented speed and magnitude at which gilt yields increased towards the end of September, as well as the ability of schemes and LDI funds to respond to this, that created liquidity pressures as LDI managers urgently sought further collateral. DB pension schemes were not at risk of “collapse” due to the rapid movements in gilt yields, but the key challenge for schemes has been the ability to access liquidity at short notice to maintain their liability hedging positions in an environment when long-term interest rates rose rapidly in just a few days.
www.thepensionsregulator.gov.uk/en/document-library/statements/managing-investment-and-liquidity-risk-in-the-current-economic-climate
The real story remains high interest rates and mortgage payments, big inflation, and a huge spending deficit.
Last edited by: Manatee on Wed 12 Oct 22 at 18:20
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