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IPE special report May 2018

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UK roundup: KPMG on LDI, Lloyds TSB Pension Scheme

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  • UK roundup: KPMG on LDI, Lloyds TSB Pension Scheme

UK – The UK liability-driven investment (LDI) market continues to grow, covering more than £446bn (€525bn) of pension funds' liabilities, yet three companies still dominate the market, according to a study by KPMG.

The study found that the UK LDI market grew by 11% since last year and cited good prospects for growth for asset managers looking to expand activities in the space.

Barry Jones, head of LDI research at KPMG, said pension funds were still looking for ways to reduce funding-level risk.  

"In an environment where cash is king, derivative-based strategies appear to be a popular way of controlling key risks whilst freeing up assets that can earn a premium invested elsewhere," he said.

"This is why we have seen growth in both LDI and 'synthetic return generating' strategies over the last year."
 
KPMG also found that, even though new fund managers are entering the market, the provision of LDI remains dominated by three main players, namely Legal & General, Insight and Blackrock.

Combined, those three companies currently control around 90% of the market based on notional value.

Tom Brown, head of investment management at KPMG in the UK, said: "Whilst the market continues to be dominated by the 'big three', growth has not been confined to them.  

"Fund managers with both medium and large LDI businesses have added to their number of mandates over the year, although at the smallest end of the market the results were more mixed."

Meanwhile, Lloyds TSB's Group Pension Scheme has sold its share of a portfolio of re-securitised US residential mortgage-backed securities, worth £1.6bn.

According to Jonathan Berman, investment partner at Sackers, which advised the defined benefit (DB) pension scheme's trustees on the disposal, the deal was "one of the largest-ever single transactions for this asset class".

He added: "This was a fast-moving and highly interesting matter, in which the role of the trustee was pivotal to the overall deal."

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