Good morning, #pensions!

Watch those collateral waterfalls flow…

Today’s @ft. pic.twitter.com/SLl1JF1ouE

— Mike Harrison (@HigherEdActuary) May 25, 2023

Her First Dance 1884 Sir William Quiller Orchardson 1832-1910 Presented by Sir Henry Tate 1894 http://www.tate.org.uk/art/work/N01519

 

The lengths to which schemes have gone “to preserve the hedge” astonishes me. Being knocked out of the hedge actually ‘exposes’ the scheme to gain, which somehow seems to be a problem for many. There is a further aspect to the movement in yields since 2021 and that is that the risk exposures of schemes have fallen as those rates have risen. What was an exposure of £1 million a year ago was at end 2022 around £500K (for 100 basis point rate change) and this is true not just of interest rate exposure, but also of inflation (which typically is a similar order of magnitude to interest rate exposure) and also longevity ( though this is usually around half the size of either inflation or interest rate sensitivities) – Con Keating

Thanks to William McGrath for the picture.