Regulators set sights on hedge funds after UK pension crisis
Britain’s markets watchdog is working with overseas regulators to look at other stresses in the global financial system, such as leveraged hedge funds, its chief executive said on Wednesday, following a pensions crisis in late September.
A radical tax-cutting budget in September by former Prime Minister Liz Truss’s government triggered a jump in British government bond yields, which forced defined benefit, or final salary pension schemes to raise cash quickly to meet margin calls on liability-driven investment (LDI) derivatives positions. The Bank of England had to step in to stabilise the market.
Financial Conduct Authority chief executive Nikhil Rathi told a parliamentary pensions committee that concentration of counterparties and margin call requirements were among the issues in focus for regulators.
“We’re working with our colleagues overseas on leveraged hedge funds or some of the 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 proved to be inadequate.
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