#457
Gilty As Charged

Published:

Oct 03, 2022


Author:

Cindy Grazer

Published:

Oct 03, 2022


Author:

Cindy Grazer


Share:

Gosh what a month! Between the passing of the Queen (God save the King), the British Pound sell-off (it’s called soccer now…), and the possibility for an emergency rate hike by the Bank Of England, the last thing the UK really needed this month was Grandma and Grandpa’s pension to be wiped out in a systemic financial meltdown. But that’s what the country came very close to this week, with the central bank being forced to step in as the buyer of last resort to help curb an LDI driven sell off that almost broke the pension market.

So what exactly is LDI and why does it matter? Put simply, Liability Driven Investing is an approach that focuses the investment policy and asset allocation decisions on matching the current and future liabilities of a pension plan, and as such represents 40% of the UK institutional asset management market and two-thirds of GDP i.e. it’s massive.

The rapid sell off in long dated Gilts meant that counterparties made margin calls on pension funds who then had to liquidate more Gilts, further spiraling price action into free fall. The BOE, which was supposed to start selling bonds to unwind Quantitative Easing as of next week, was forced to reverse course and temporarily start buying bonds to curb a Lehman Brothers style market contagion.

So…14yrs and 16 days since Lehman collapsed, and 10 years since FinTech Collective started investing in how money flows through the world, we’ve just had another good reminder that there is still a lot for entrepreneurs (both tradfi and defi ) to fix in the system. Let's hope the image of King Charles III appearing on Sterling gives it more than a cursory redecoration!

Gilty As Charged


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Industry News


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