Perspectives

As the scars heal from last year's Gilts crisis the scale of the impact on pension schemes' funding levels and portfolios is now clear, and the lessons learned have been disseminated across the market.

However whilst these lessons help us to understand the past and prepare for whatever the future may bring; are we doing all we can to try and mitigate the next "crisis" before it happens, or to better position ourselves to take advantage of volatility, not just to be in a position to react defensively?

Consequently the insights from Alastair Greenlees, CFA, Calum Edgar, CFA and Vicky Casebourne's white paper entitled "The Age of the Net Seller" https://lnkd.in/etFk2NiKis highly significant. They astutely point out the potentially seismic shifts in the UK bond market, as we transition away from a period of guaranteed buyers to a future where we must grapple with increased volatility and potentially even higher yields.

The UK gilts crisis of 2022 served as a stark reminder of the vulnerabilities inherent in highly concentrated markets and the perils of liability-driven investment strategies, especially under regulatory frameworks that tie pension funds closely to government debt. Van Lanschot Kempen's paper discusses how those systemic risks are still present, and highlights the implications for trustees and the need for proactive management in anticipation of Gilt market dynamics that are no longer buffered by significant institutional buying.

I admire the prescience of the call for trustees to not only prepare for volatility but also to critically reassess their long-term objectives, keeping in mind the potential for utilizing market forces to their advantage. This is a lesson underscored by the gilts crisis—where the failure to adapt to changing market conditions can have profound consequences.

As we look to the future, the value of strategic foresight cannot be overstressed. VLK's recommendations for trustees to consider liquidity, reassess their portfolios, and explore alternative end-game options are prudent steps that build on the hard-learned lessons from the Gilts crisis.

We have a useful blueprint for thinking about how to navigate the coming age of the UK bond market. It presents a call to action that resonates deeply with the need for agility and strategic planning in the face of evolving market landscapes.

As we move forward, embracing insights like these will be crucial for maintaining financial stability and securing the interests of all stakeholders involved. Food for thought and a job well done.

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