mast image

Impact Investing

IPE special report May 2018

Sections

LGIM sees slow swaps take-up

UK - Legal & General Investment Management says only a very few of its 2,000 UK pension fund clients have so far looked at swaps as a means of matching their liabilities.

LGIM economist Andrew Clare said that a "tiny proportion" of clients have even considered the instruments. He said the development of swaps for pension funds is at a very early stage.

He explained that the instruments can assist in matching scheme liabilities by swapping bond income flows. "It's not a panacea, it's not a cure-all.It's a tool to aid this shift to bonds."

Downsides included the complexity of having to agree guarantees with counterparties, Clare said. ""Some trustees may be put off by the complexity of these things. These really are quite nasty."

He added: "Trustees need to be comfortable with the use of derivatives."

And the timing for moving into swaps was not necessarily right at the moment, Clare added. He said the current state of the UK yield curve meant that long-duration bonds are expensive - due in part to the strength of demand from insurers and pension funds.

Swaps help to facilitate the shift to bonds - which is only viable if a
scheme is in surplus, Clare commented. "Pension funds will hold back if they're getting the right advice," Clare said. He advised swaps "only if your scheme can bear the cost". Larger company schemes benefit because corporate treasurers are used to dealing with swaps, he said.

He said LGIM is lobbying the government's Debt Management Office to try to get it to issue longer-dated debt.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2436

    Asset class: Real Estate - Core Open-ended Real Estate Equity Fund (non-listed).
    Asset region: Asia Pacific.
    Size: Approx. CHF 70-100m per investment.
    Closing date: 2018-05-25.

  • QN-2438

    Asset class: High Yield Bonds.
    Asset region: US.
    Size: USD 300 million.
    Closing date: 2018-05-25.

  • RE-2441

    Closing date: 2018-05-31.

Begin Your Search Here