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UK pension liability hedging strategies total 657 billion pounds in 2014 - report

Published 29/06/2015, 00:07
© Reuters. Resident Ernie Mayes, 89, has his eyes checked by Optometrist in his flat at the Colbrooke House care facility run by a private company working on behalf of the local government and housing association in southeast London

LONDON (Reuters) - British pension funds' liability-driven investments jumped 29 percent to a total 657 billion pounds in 2014 as they tried to combat the negative impact of low yields, according to a report by consultants KPMG published on Monday.

British defined benefit, or final salary, pension schemes are in deficit as traditional investment in government bonds does not produce enough money to pay pensioners, forcing pension funds to adopt hedging strategies.

Liability-driven investment (LDI) uses derivatives to improve the match between pension funds' investments and their future outgoings.

"Against a backdrop of record low yields, pension schemes continue to use LDI to de-risk," KPMG said in its annual LDI report. "We expect the industry to grow significantly in 2015 and beyond."

© Reuters. Resident Ernie Mayes, 89, has his eyes checked by Optometrist in his flat at the Colbrooke House care facility run by a private company working on behalf of the local government and housing association in southeast London

More than 200 new mandates were awarded last year, the firm added. Legal & General Investment Management, Insight Investment and BlackRock together have 85 percent of the market.

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