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Columbia Threadneedle, Mercer warned BoE on gilts

FILE PHOTO: Illustration shows pound banknotes

By Carolyn Cohn

LONDON (Reuters) -Investment manager Columbia Threadneedle and pension consultants Mercer warned the Bank of England about the impact on pension schemes of recent gilt market moves, they told Reuters on Wednesday.

The Bank of England said earlier on Wednesday it would buy as many long-dated government bonds as needed between now and Oct. 14 to stabilise financial markets, amid a slump in British gilt prices following a government fiscal statement last Friday.

Columbia Threadneedle had a "fiduciary duty" to its clients to alert the central bank to problems for pension schemes caused by the sharp rise in yields in recent days, said Simon Bentley, head of solutions (UK) client portfolio manager at Columbia Threadneedle Investments, adding the firm had several conversations with the BoE.

Mercer spoke to the central bank on Monday, said James Brundrett, a partner at the firm, adding that other firms had also been in contact with the bank.

"There's been collaboration across the industry."

Pension schemes were forced to sell gilts after they found it hard to meet emergency demands for collateral on under-water gilt derivatives positions from so-called liability-driven investment (LDI) funds such as those managed by Columbia Threadneedle.

Bentley and Brundrett both said the problem was one of short-term liquidity, rather than long-term funding.

Higher yields are positive for pension schemes, as it means they need to hold less money now to pay pensions decades into the future.

But LDI funds may demand more upfront collateral in future, to prevent a similar crisis from happening again, Brundrett said.

(Reporting by Carolyn CohnEditing by Gareth Jones and David Evans)