5 April 2019
“XPS Investment’s second Liability Driven Investment (LDI) survey reveals the initial challenges around LDI strategies are well and truly behind us. LDI is now commonplace for UK pension schemes and used as a very effective way to reduce risk for all sizes of pension schemes.
Liability values of a typical pension scheme will have fluctuated by around 8% from peak to trough in relation to gilt yield movements over 2018. Using LDI strategies neutralises this impact, making funding levels more stable and pensions more predictable. XPS’s LDI survey 2019 confirms that the market continues to grow at a pace, as key findings include: £1,024 billion of liabilities hedged in the UK pension market in 2018, an increase of 6% from 2017, 54% of UK pension scheme liabilities hedged in 2018, 92% of this year’s new mandates by number were pooled mandates, showing more small schemes entered the LDI market in 2018, 52% increase in the number of LDI mandates accessed via investment platforms and an overall increase of 12% on all LDI mandates in 2018, 86% of overall LDI liabilities were hedged using gilt-based derivatives, reflecting higher yields and that the majority of pension schemes are funded on a gilt-based measure, 87% of overall LDI liabilities hedged managed by The Big Three – LGIM, Insight and BlackRock”
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