The chairman of Legal & General has slammed Liz Truss for creating market chaos that drove several pension funds to the brink of collapse.
Sir John Kingman, a former Treasury mandarin, said no one expected the Government to push ahead with policies that would create ‘such extraordinary instability’, referring to Kwasi Kwarteng’s mini-Budget in September.
L&G is one of the UK’s biggest sellers of so-called liability-driven investment (LDI) strategies.
Risk: L&G is one of the UK’s biggest sellers of so-called liability-driven investment strategies
LDIs are used by final-salary pension schemes to ensure they can meet future payouts, while hedging against inflation and interest rate movements.
They allow a pension scheme to borrow to increase its exposure to gilts, or government debt, freeing up more money to invest in riskier, higher-returning assets like equities.
But when gilt prices plunged in the aftermath of Kwarteng’s mini-Budget, the banks that had lent to LDI funds demanded more collateral – meaning the funds were pushed into a fire sale of assets to raise cash.
This left some on the brink of collapse, with the pension funds which had used them facing heavy losses.
L&G chief executive Sir Nigel Wilson added the speed of the market crash ‘caught us all by surprise’.
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