As the UK pensions market is getting more used to nominal and real rates remaining lower for longer, investment manager F&C Investments says that this has caused UK pension schemesto reconsider their current levels of liability hedging. Liability driven investment (LDI) funds have subsequently seen an uptick in demand.
F&C's Dynamic LDI fund range aims to benefit from the changes in the relative price of swaps and gilts by switching between them systematically to generate outperformance relative to liabilities. F&C funds now hedge £5 billion (€6.8 billion) of liabilities.
In 2014, F&C was appointed by 33 pension schemes to hedge their liabilities through its Dynamic LDI fund range.
Simon Bentley, client director at F&C Investments, says that the persistence of low yields means that schemes are increasingly keen to work their LDI allocation harder and invest in strategies that can outperform a passive hedge.
"The local government pension scheme (LGPS) sector in particular is a strong growth area for F&C. Our funds overcome some of the traditional LGPS challenges around derivative holdings whilst offering a governance efficient and cost effective hedging solution," says Bentley.
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