To date, there has been a united front between  asset managers and intermediaries over the LDI crisis. Both have been prepared to brave it out hoping that indignation with Trussnomics will protect them from criticism either from regulators above or clients below.

But it’s clear that big Government is not prepared to see the LDI crisis as a one-off blip and they are considering what happened around the end of September as a major failure in risk management. This is a phrase used by the Bank of England whose  Sarah Breeden last week called on banks selling products through fund managers to trustees, to take more care

“Banks have an important role to play in reducing risks both to themselves and to the wider system from non-bank leverage,” she said, describing how banks should demand more information on the underlying financial picture of the funds they deal with, and try to understand how those funds could be hit by market tumult.

Schroders started life as an investment bank and relatively recently branched into asset management buying LDI provider River and Mercantile in February this year. It has therefore put itself up as a target for investigation and the CEO, Peter Harrison is prepared to speak out against the prevailing consensus.

Sadly, I can’t bring you the Ignites Europe debate in which Harrison’s remarks are reported to have been made as it sits behind a paywall I cannot open. However, the FT is reporting him making some strong statements about conflicts between consultants who direct the implementation of LDI contracts and often manage them on a fiduciary basis, and the fund managers , who were the closest intermediaries to the banks themselves.

“There are definitely some quite major conflicts in the industry, which still need addressing . . . in terms of being both the assessor of asset managers and the manager of assets themselves through their implementing orders,”

I hope you can sense my frustration in trying to get to the bottom of this. I am reporting on reporting of reporting and in a couple of Wednesdays time I will be asked to give evidence to the Work and Pensions Select Committee on how I see accountability happening. My current answer is that I see asset managers , fiduciary managers and investment  consultants in a circular firing squad, waiting for one to pull the trigger. Maybe Peter Harrison already has

The cartoon is good, it shows the victims of what has gone wrong cowering on the floor, this is how trustees may be feeling right now as the big beasts continue their stand off.

In 2018, the Competition and Markets Authority investigated the “fiduciary management” sector of investment consultancy and backed away from major reform , opting for some controls to be put in place on how contracts were awarded and retained so incumbent investment consultants couldn’t shoe in  advised clients to a “funds under advice” model. Though fiduciary managers baulk at the comparison, they were looking for the same model as wealth managers have achieved in the retail sector and advisory master trusts are aspiring to , with DC workplace pensions. It should be noted that Schroders are themselves major players in wealth management.

The failure of the CMA to separate consultancy from asset management left the potential for conflicts of the type Harrison is alluding to. The FCA were then  looking at how the advisers who used pooled funds, products that normally fall within their regulatory perimeter, were supervised. Most investment consultants use permissions granted them through the Institute and Faculty of Actuaries who act as the FCA’s agent . There had been talk in 2018 of consultants needing to register as directly authorised by the FCA, these were dropped.

Judging by recent comments from Nikhil Rathi, who has suggested tougher rules for pension fund consultants would ensure greater focus on managing risks, direct authorisation may well be back on the table.

Consultants – whatever their contract with their clients, are clearly feeling nervous. Peter Harrison did not mince words. Trustees may be recovering from recent shocks but they will be having some difficult conversations with sponsoring employers as to what happened to the assets funded for by deficit contributions over the past ten years and why leverage is only now being wound down.

Harrington is explicit on the role taken by consultants in considering the capacity of gilt yields to spike

“Perhaps if their advisers had been more sensitive to dealing with levels of stress like this, some of that risk would have been managed more effectively.”

and adding

“There’ll be a major reshaping of market share as a result of what’s gone on,”

Consultants will probably be less worried about who will own the value in the market as the more existential threat that Harrington included in his contribution to this debate

He [Harrington] also warned legal challenges by trustees might follow as a result of problems experienced by leveraged pooled LDI funds at the height of the crisis in the gilt market. Pension funds stopped out of positions by their LDI providers because they could not meet their collateral calls are “going to be really upset and I think they will seek recourse”