The debate on the future of LDI can be polarised by comments of two highly respected figures who have been active in the bond market for decades.
Dawid Konotey-Ahulu said to the FT that there was “no doubt” schemes that had employed heavily leveraged LDI strategies “would have experienced more pain” in the past week. But he said the fundamental concept of LDI was still sound but schemes would need bigger collateral buffers to protect them against sharp price swings.
“There can be no doubt that every pension fund will have to take stock of their collateral buffers [following the crisis]…. “But the LDI mechanism has worked up until now. When systems are rocked by unparalleled events, the answer is not to dispense with the mechanism.”
A contrary view, appeared in today’s Guardian
Con Keating, chair of the bond commission of the European Federation of Financial Analysts Societies, told the Guardian that the most effective way to avoid a similar crisis would be to ban the use of LDI strategies altogether.