John Belgrove , who has long been a friend to this blog , has published on Linked-in a Venn diagram.
This is not an ad hominem attack on John, he is being helpful in articulating a commonly held view (judging by the 200 or so comments on a recent FT article trying to explain why the BT pension scheme has lost £11bn in a couple of months)
John’s diagram suggests that the vast majority of the red box – people writing about LDI, neither understand it or understand DB funding. They are therefore not producing “useful content”.
Patrick Lee, a former member of the Institute and Faculty of Actuaries has asked..
Isn’t it rather odd that [the IFOA] has had nothing to say about the crisis in #LDI pension plans which caused the Bank of England to intervene in the UK gilt market to prevent a possible catastrophic downward spiral and which independent pensions expert John Ralfe has said .. requires an urgent investigation by regulators including the Bank of England and the Pensions Regulator?
Presumably , to properly understand all the nuances of LDI , you need to be an actuary, lawyer, pension scheme expert and investment professional. Even John Belgrove is not all of those!
Who can write about LDI?
So we might conclude that the FT should not be writing about LDI and that I shouldn’t either. Infact we should confine the comments on LDI to the tiny coterie who John considers can write “useful content“.
Patrick Bloomfield, partner actuary at Hymans Robertson is worried that the press are needlessly alarming people
“Many of the headlines, especially mainstream press stuff, has been wildly misleading and scaremongering,” ,
“Most schemes use a bond yield for that calculation or maybe a gilt yield plus a margin. So as gilt and bond yields have gone up, there’s more discounting and liabilities have come down. So high yields means low liabilities. In other words, this is good for pension scheme funding.”
So the public have been misled by the Bank of England’s £65bn safety net, designed to stop LDI pooled funds being wiped and segregated funds being met with collateral calls that if met could do serious harm to scheme and sponsor?
In answer to my question, I suspect that discussions of the impact of LDI on UK pension schemes should be written by actuaries and lawyers for actuaries and lawyers in their journals and the doors firmly locked against journalists , let alone the general public (aka pension scheme members). Click this link to get an idea of what I’m talking about.
This reminds me of the days when people who published biblical texts in English were burnt at the stake. LDI is as accessible to ordinary people as the bible was in vulgate Latin. Allowing people to see what is going on in the bible , means allowing them to make their own minds up – something that the Church was so afraid of that they martyred the publishers and translators.
I doubt that many journalists felt quite that heat this month, but reading the comments to their article from anonymised experts, I am sure they felt uncomfortable. It is not they that should be uncomfortable, it is those who wish to suppress the provision of information and the revelation of the consequences of schemes over-loading with gilts to meet regulatory demands that should feel uncomfortable.
There were other ways to fund schemes over the past fifteen years, LDI was not the exclusive strategy . There are those outside the inner sanctum who are trying to talk and read about LDI in a language we all can understand!