“Forced Selling of Everything” – UK Pension Funds Are Still Liquidating Assets, Seeking Bailouts

Zero Hedge

September 30th 2022, 12:11 pm


UK pension funds are/have been servicing ever increasing margin calls driven by the extreme moves in real and nominal rates.

Image Credit: PublicDomainPictures


As BondVigilantes.com notes, they are on a hunt for liquidity (cash) to service these calls at the same time the liquidity (bid offer spread) of asset markets is extremely fragile. A sub layer to this dynamic is that pension funds are also a significant provider of gilts to the repo market (which they repo out to fund levered investments) and where we are now seeing some strain as these gilts are either withdrawn from repo programmes (to sell, as of yesterday to the BOE) or repo’d out to raise cash to fund said margin calls.


The timing could not be worse with quarter end looming, increasing demand for bank balance sheet from non-bank market participants and an ever increasing war chest of cash from the liquidity ‘Haves’ chasing collateral.


While The Bank of England stepped in to buy gilts on Wednesday, stabilising the market, The Financial Times reports that the pension funds are continuing to sell assets to meet cash calls.

“There’s a lot of pain out there, a lot of forced selling,” said Ariel Bezalel, fund manager at Jupiter.
“People who are getting margin called are having to sell what they can rather than what they would like to.”

He said the BoE’s intervention had helped to bring down yields in longer-dated bonds but other assets remained “under pressure” because pension schemes were “having to liquidate paper”. He added:

“We’re seeing really quality investment grade paper coming up for grabs…names like Heathrow, John Lewis, Gatwick, BT – solid fundamentals – to raise cash.”

Simeon Willis, partner at XPS Pensions Group, said:

“Pension schemes are selling equities and corporate bonds and using those assets to top up their hedges.”
“There could be many hundreds of schemes that have had their hedges reduced or removed. This means their funding positions are now much more vulnerable than they were a week ago.”

To fund the collateral calls, some pension schemes have resorted to asking employers backing their plans for cash. Outsourcing group Serco provided £60mn after a request from pension trustees, according to a person familiar with the matter, a highly unusual move for a well-funded corporate scheme. Sky News first reported the move.


While some schemes continue to rush to raise cash to fund their derivatives positions, others have had the positions terminated by LDI managers, including BlackRock, leaving them exposed to further moves in rates and inflation.


Related to this liquidation, more behind-the scenes details of this week’s chaos in the UK are being exposed with The FT reporting that none other virtue-signaler-extraordinaire BlackRock basically ‘blackmailed’ the UK government into intervention as UK pension funds faced crises.


Read the full article here!