Kwasi Kwarteng said he is ‘not committed to any spending’ (Aaron Chown/PA)
(Picture: PA Wire)“Here is something you don’t really understand. It will increase your returns while reducing the risk”. This, in a nutshell, is the cause of last week’s near-catastrophe in the gilts market. As a piece of financial prestigidation, Liability Driven Investing (LDI) is right up there with the raft of other initials which somehow offer this beguiling prospect. Against the super-smart bankers and fund managers who peddle this stuff, the part-time pension trustees don’t stand a chance.
Well, not quite all of them. Some had been reluctant to drink the bankers’ Koolaid, even when their fund manager urged them to do so. Take, for example, the Universities Superannuation Scheme (USS), with over £80bn under management, managing the pensions for half a million employees in higher education. You would not expect the vice-chancellors of Oxford and Cambridge, plus the president of Imperial College, to see the potential for disaster in a proposal from the chief executive of their scheme to bet heavily on LDI. In February this year, they did exactly that.
