On 30 November 2022, the FCA published a statement made by the Pensions Regulator, the Central Bank of Ireland and the Commission de Surveillance du Secteur Financier on the resilience of Liability Driven Investment (LDI) portfolios and the operational governance of pensions schemes using LDI strategies.
The statement sets forth that, the FCA expects asset managers to take necessary or appropriate action following the communication and that they operate their products and services in a way that will not create risks to market integrity or financial stability. Managers of LDI funds should learn lessons from these events to understand and reduce the consequences in tail events. These include operational lessons, the speed with which they are able to rebuild buffers or rebalance funds, client and stakeholder engagement, and reliance on third parties.
All market participants should factor recent market conditions into their risk management, and should adopt a wider horizon of events that might be considered extreme but plausible. As in this event, participants should also consider the risk profile and systemic dynamics of events that could conceptually occur beyond this.
The FCA are reviewing lessons learned and engaging with firms on their operational contingency planning and intend to publish a further statement on good practice towards the end of Q1.