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Pension schemes advised to sell LDI funds after gilt chaos - FT

(Reuters) - Pension schemes that invested in liability-driven investment (LDI) funds run by BlackRock and other managers are being advised to sell their holdings, the Financial Times newspaper reported on Monday.

Investment advisers XPS Pensions and Barnett Waddingham have cut their ratings on some pooled LDI funds to their lowest ranking, according to the report, adding that the downgrades had been communicated to multiple pension funds.

The downgrades only affected "pooled" fund arrangements, or a large group of pension schemes invested together, rather than individual scheme funds, the report added.

"We have been working constructively with both consultants on addressing the points raised, and look forward to continuing this engagement in the interests of our mutual clients," Blackrock said in an emailed response to Reuters.


XPS confirmed that it has downgraded three LDI managers pooled funds off the back of the research undertaken during December and January.

"This relates to concerns around how the managers are expected to perform going forwards where issues which were highlighted during the crisis have not yet been adequately addressed", XPS Pension Chief Investment Officer Simeon Willis said in an email to Reuters.

The company is working with managers to help them address these issues, the statement added.

LDI funds have been used by pension schemes to ensure they can meet payouts to pensioners in future years.

But the turmoil in the British government bond market in September triggered by former Prime Minister Liz Truss's radical tax cut plans caused problems for these funds.

The Bank of England is set to put out a tougher framework next month to regulate LDI funds, which could put them out of reach for some pension schemes, BoE executive director Sarah Breeden said last week.

Barrett Waddingham did not immediately respond to a Reuters request for comment.

(Reporting by Urvi Dugar in Bengaluru, Additional reporting by Gokul Pisharody and Siddharth Jindal; Editing by Subhranshu Sahu)