Top fund manager suffers £21bn hit from pension fund crisis
Britain’s biggest fund manager suffered a £21billion hit after turmoil in the repo market triggered a wave of panic selling.
Schroders, the FTSE 100 investment firm, revealed on Thursday that turmoil in the liability-driven investing (LDI) market caused assets in its solutions division to plummet by £225bn in June to 205 billion pounds at the end of September.
The decline highlights the impact of Liz Truss’ mini-budget on asset managers as borrowing costs surged, forcing pension funds to raise capital quickly to meet cash calls.
As gilt yields rose, pension fund managers received “margin calls” to post collateral on LDIs, which combine borrowing with investments in derivatives and bonds.
Schroders is one of the largest players in the LDI market alongside Legal & General, BlackRock and Insight Investment.
Earlier this week the BT Pension Fund, the UK’s largest company pension scheme, said it had suffered an £11billion hit as its investments were rocked by the turmoil in the market.
The crisis has raised concerns that the city’s watchdogs have failed to adequately guard against potential threats to financial stability in obscure parts of the market.
In the Netherlands, the central bank is calling on the country’s pension funds to consider increasing their holdings of cash and other liquid assets to ensure they can avoid turmoil similar to Britain’s, according to the Financial Times.
The derivatives industry’s leading trade body has also called for the creation of a central bank-backed facility that European pension funds could tap into as a last resort to avoid the forced sale of assets imposed on pension managers. British.
However, the head of Britain’s retirement lifeboat has previously defended LDIs, saying they ‘should remain an integral part of pension schemes’.
Kate Jones, chair of the Pension Protection Fund (PPF), said that there was “nothing inherently bad” with the LTDs, which had “very, very well served the pension plans since 2008”.
Asset managers had a tumultuous year as the war in Ukraine and the deteriorating economic environment weighed on clients’ willingness to invest.
Schroders, which has suffered a halving in its share price over the past 12 months, announced on Thursday that total assets under management fell again from £773bn to £752bn between July and september.
Smaller rival Jupiter Fund Management reported a slowdown in outflows in the quarter, with assets under management falling by £600m.
The company said: “A deteriorating macroeconomic backdrop, lingering geopolitical challenges and inflationary concerns, particularly in the UK, weighed on investor sentiment again in the third quarter.”
Meanwhile, asset growth at investment platforms St James’s Place and AJ Bell took a hit due to market chaos.
While both companies have consistently reported net inflows, the pace has slowed compared to previous quarters.
At SJP, funds under management at the end of September were £5bn lower than a year ago, despite net inflows of £2.2bn in the quarter.
JP Morgan analysts said they expect SJP’s growth to slow further in the fourth quarter.