ALEX BRUMMER: No regret for gilts bedlam

ALEX BRUMMER: No one involved in the £20bn LDI scandal has shown the slightest remorse

Parliament is investigating responsibility for the collapse of the government bond market in September and its impact on millions of people’s pensions is empty.

No one involved in this massive scandal, which required a £20bn intervention from the Bank of England to prevent a cascade of insolvencies, has shown the slightest remorse.

Witnesses play the pack with passing the blame. The idea that the use of liability-driven investments (LDIs) was a victimless strategy must be aggressively challenged. UK government bonds are meant to be the safest assets available.

The government bond market collapse in September required a £20bn intervention from the Bank of England to prevent a cascade of insolvencies

So driving them up by borrowing and exposing the pension funds to complex derivatives should never have happened.

Pension funds, insurers and banks are required to hold large amounts of gilt-edged stocks to de-risk their balance sheets and not turn them into a time bomb that exploded when bond yields moved out of expected ranges.

These events have left some defined benefit pension funds with gaping black holes. The BT pension scheme, one of the largest in the country, ran an £11bn shortfall and warns the sponsoring company may need to contribute more money to make the scheme secure.

Green-friendly packaging group DS Smith has revealed it has had to pour £100m in operating reserves into its pension fund to support it.

Lloyds Bank’s pension fund had to sell billions of pounds worth of assets during the turmoil to meet the demand for collateral. The bank itself was in over its head in lending to LDI schemes.

The most recent witnesses to the House of Commons inquiry into the crisis refused to endorse a suggestion by the Bank of England that the leverage in the schemes was mismanaged.

Insight, which manages £680bn in assets, only “partially agreed” that leverage was the cause of the disruption.

Another manager, Cardano, attributed the chaos to a total lack of confidence in the gilts market. Schroder said regulatory oversight needs to be improved.

While the hearings have concluded, so far no one has said they regret what happened or that any mistakes were made. L&G blamed the turbulence caused by the Truss government.

The Bank of England seems content to play blind by picking up the pieces and calming the market.

But the reality is that the Bank of LDI’s stress test was wholly inadequate, with the Pensions Supervisor doing nothing and millions of ordinary future and current retirees being left in the lurch.

The belief in the city is that because the markets are now windless, the water is under the bridge.

Not for pension fund managers who are running deep shortfalls and rely on sponsoring companies to come to the rescue.

Down hill

The Daily Mail is moving and while I was clearing out files, a yellowed copy of a Spring 2019 Hargreaves Lansdown Wealth 50 buy list fell off the shelf.

It was clear to see how the investment platform enthusiastically recommended that its clients buy into Neil Woodford’s Equity Income fund, despite its abysmal performance. Just a few weeks later, the fund was liquidated because it could not meet its redemptions.

It turned out that 291,520 people, or a quarter of the broker’s clients (including this writer), were directly or through Hargreaves’ fund of funds exposed to Woodford’s high-risk investments.

Some three years on Chris Hill, the CEO at the helm of Hargreaves, falls on his sword. In the year following Woodford’s demise, Hill voluntarily shunned his bonus, but his fee has been reinstated, reaching £2.7million in 2020-21.

An investigation by the Financial Conduct Authority has yet to be completed, so any Hargreaves guilt for the debacle remains unproven so far.

Hill’s successor, digital expert Dan Olley, will have the dubious privilege of picking up all the pieces.

Grey day

The New York Times is known for its relentless criticism of the food bank, recession-ravaged and strike-prone Britain after Brexit.

So forgive a touch of glee when I learned that the ‘Grey Lady’ itself was hit with a one-day walkout yesterday as 1,100 journalists and other union workers went on strike claiming the paper’s failure to negotiate ‘good faith’ wages to negotiate. .


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