Regulators have focused on hedge funds since the UK pension crisis | Daily News Byte

London, Dec. 14 (Reuters) – Britain’s markets watchdog is working with foreign regulators to look at other tensions in the global financial system, such as leveraged hedge funds, its chief executive said on Wednesday, following the pension crisis in late September.

A radical tax-cutting budget by former prime minister Liz Truce’s government in September sent British government bond yields soaring, forcing defined benefit or final salary pension schemes to raise cash faster to meet margin calls on liability-based investment (LDI). Derivatives position. The Bank of England had to step in to stabilize the market.

Financial Conduct Authority chief executive Nikhil Rathi told the Parliamentary Pensions Committee that concentration of counterparties and margin call requirements are among the issues in focus for regulators.

“We are working with our colleagues overseas on leveraged hedge funds or some other risks that we see in markets around the world,” he said.

The committee has launched an inquiry into the regulation of defined benefit pension schemes using LDI, as their buffers against rising bond yields have proven inadequate.

Investment funds and other non-bank financial institutions face their first “stress test” next year to apply lessons from the crisis, the Bank of England said this week.

Rathi and the pensions regulator’s chief executive Charles Counsel told the pensions committee that LDI funds now require much higher levels of collateral from pension schemes, reducing the risk of having to raise money quickly to meet margin calls in any future crisis.

But they said pension scheme trustees, who are responsible for nearly two trillion pounds ($2.48 trillion) in assets and were forced to make snap decisions to sell assets to raise cash during the crisis, needed to be better informed.

There are over 5,000 defined benefit pension schemes in Britain. Rathi said that a smaller number of schemes using professional trustees may be better able to “deliver the right financial results in terms of the long-term investment we want to see in our economy”.

Counsel said a “small number” of pension schemes had seen their funding levels worsen as a result of the crisis.

($1 = 0.8081 pounds)

Additional reporting by Hugh Jones; Editing by Alison Williams, John Boyle and Jane Merriman

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