UK pension schemes are racing to raise hundreds of billions of pounds to shore up derivatives positions before the Bank of England calls time on support aimed at keeping them afloat.
The Bank of England plans to stop buying bonds on Oct. 14, leaving pension schemes scrambling to meet a collective cash call estimated to be at least 320 billion pounds without a buyer of last resort.in just over two weeks to try and restore order in markets, after a surge in yields on Sept. 28 threatened to overwhelm pension schemes that had loaded up on leveraged derivatives.
"This week with the gilt market not fully calmed, lots are now looking at this and saying we actually need to do a bit more and so there is renewed action to get even more collateral across," said Steve Hodder, a partner at pension consultants Lane Clark & Peacock. BoE Governor Andrew Bailey, speaking in Washington later in the day, said: "And my message to the funds involved and all the firms involved managing those funds. You've got three days left now. You've got to get this done." SCRAMBLE FOR CASH
The scramble for cash in the 1.6 trillion pound LDI industry, which soared in popularity among Britain's defined benefit schemes during a decade of low interest rates, is forcing pension funds to dump government and corporate bonds and even to exit from less liquid assets such as property and private equity.
"We are definitely not there," he said, referring to whether funds were close to raising the required cash by selling assets. He described last week as "one of the biggest ever for sell orders. You are seeing more sales this week."
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