LDI provider rocked as assets slump 28pc

oNe of the biggest players in last year’s uK gilt market crisis has revealed a big drop in assets under management.

Insight Investment, which provides liability driven investment products (lDIs), posted a 28pc fall in assets from £767.6bn to £555.2bn in 2022 following the chaos last september.

the company blamed the steep decline on autumn’s mini-Budget when liz truss’s government announced a £45bn package of unfunded tax cuts.

a crisis quickly engulfed the sector, which is dominated by Insight, as well as rivals BlackRock, schroders and legal & general, with uK gilt prices tumbling and yields soaring on the prospect of higher borrowing costs. In the results, which were posted in april, Insight said: ‘the reduction in assets under management was a result of negative market movements which reduced the liabilities for our pensions clients within our lDI book of business.

‘In the uK, the government bond market came under particular pressure after the mini-Budget, which caused gilt yields to rise sharply, resulting in both a reduction in the present value of the assets that Insight manage as well as outflows of our client’s liquid asset holdings which were required to maintain collateral hedges.’

the results also revealed that despite the carnage, Insight’s highest paid director took home £6.7m last year, a steep rise from £4.2m the year before.

the company – which is owned by investment banking group BNY Mellon – refused to say whether the pay rise was awarded to chief executive abdallah Nauphal, an industry veteran known as the ‘godfather of the lDI market.’

the pay reward came as Insight posted a profit of £149.1m, up from £125.3m the year before. lDI products were used by pension funds to hedge risks caused by adverse movements in inflation and interest rates, but last autumn the speed of the sell-off in uK gilts in the aftermath of the mini-Budget led to a rush of cash calls that wrong-footed many lDI managers.

as bond prices fell, counterparties demanded more money as collateral to keep the hedging arrangements in place. to raise the money, funds were forced to sell assets, including gilts, depressing prices further and risking a ‘doom loop’. the results from Insight reveal the extent of the chaos caused by the crisis and come at an awkward time for the industry as uK bonds, known as gilts, are on course for their biggest rise – bar the mini-Budget – since 2008.

two-year gilts hit a rate of 4.38pc yesterday, with ten-year bonds at 4.21pc – both were recently below 3pc – amid fears that lDI strategies could be exposed once again.

In March, legal & general conceded that the collapse in the value of lDI funds was a factor in its £225bn drop in the value of assets managed by its fund management arm, lgIM, to just under £1.2trillion.

Rival schroders also lost £20.2bn in assets last october from the division that includes its liability-driven investing business.