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Blue chip fund manager suffers £21bn blow from pension fund crisis

City of London - ANDY RAIN/EPA-EFE/Shutterstock
City of London - ANDY RAIN/EPA-EFE/Shutterstock

Britain’s biggest fund manager has suffered a £21bn hit after turmoil in the pensions market triggered a wave of panic selling.

Schroders, the FTSE 100 investment company, revealed on Thursday that turmoil in the liability-driven investing (LDI) market had sent assets in its “solutions” division plunging from £225bn in June to £205bn at the end of September.

The drop highlights the impact Liz Truss’ mini-Budget had on asset managers as borrowing costs jumped, forcing pension funds to quickly raise capital to meet cash calls.

As gilt yields rose, pension fund managers were issued with “margin calls” to post collateral on LDIs, which combine borrowing with investments in derivatives and bonds.

Schroders is one of the biggest players in the LDI market alongside Legal & General, BlackRock and Insight Investment.

Earlier this week the BT pension fund, the UK's biggest corporate pensions scheme, said it took an £11bn hit as its investments were shaken by market turmoil.

The crisis has sparked fears that City watchdogs have failed to properly guard against potential threats to financial stability in obscure parts of the market.

In the Netherlands, the central bank is calling on the country’s pension funds to consider boosting holdings of cash and other liquid assets to ensure that they can avoid similar turmoil to Britain, according to the Financial Times.

The derivatives industry’s main trade body has also called for the creation of a central bank-backed facility that European pension funds could tap as a last resort to avoid the fire-sale of assets forced on UK pension managers.

However, the head of Britain’s retirement lifeboat previously defended LDIs, saying they “should remain an integral part of pension schemes”.

Kate Jones, chairman of the Pension Protection Fund (PPF), said that there was “nothing inherently wrong” with LDIs, which had “served pension schemes very, very well since 2008”.

Asset managers have faced a tumultuous year as the war in Ukraine and the deteriorating economic environment has weighed on customers’ willingness to invest.

Schroders, which has suffered a halving of its share price in the last 12 months, reported on Thursday that total assets under management had tumbled again from £773bn to £752bn between July and September.

Smaller rival Jupiter Fund Management reported a slowdown in outflows during the quarter, with assets under management down £600m.

The company said: “A worsening macroeconomic backdrop, continued geopolitical challenges and inflationary concerns, particularly in the UK, again weighed upon investor sentiment in the third quarter."

Meanwhile, the growth of assets at investment platforms St James’s Place and AJ Bell took a hit because of market chaos.

While both companies still reported net inflows, the pace slowed from previous quarters.

At SJP, funds under management at the end of September came £5bn lower than a year ago, despite net inflows of £2.2bn during the quarter.

Analysts at JP Morgan said they expect a further slowdown in SJP’s growth in the fourth quarter.