By Carolyn Cohn
LONDON (Reuters) -U.S. asset management group BlackRock said on Friday it was reducing leverage in so-called liability-driven investment (LDI) funds – which have been at the centre of chaotic market conditions for British pension funds this week.
British government bond prices slumped by their most in decades following finance minister Kwasi Kwarteng’s first fiscal statement last Friday, threatening the stability of the country’s pension funds and forcing the Bank of England to intervene on Wednesday.
“As a result of the extreme volatility in the gilts market this week, we have been working expediently over recent days to support our clients’ interests,” a BlackRock spokesperson said in an emailed statement.
“We have been reducing leverage in some of our LDI funds, acting prudently to preserve our clients’ capital in extraordinary market conditions. Trading in BlackRock funds has not been halted, nor has BlackRock ceased trading in gilts.”
LDI funds can be leveraged up to four times, industry consultants say.
In a note to clients on its LDI liability matching funds, dated Sept. 28 and seen by Reuters, BlackRock said at the time that it would not be proceeding with further recapitalization events until further notice.
It also said in that update that it was “closely monitoring leverage levels across the range” with a focus on those at risk of assets being exhausted.
“For such funds, we will fully unwind exposure to rates and inflation and initially hold the asset in cash before looking to reinstate unleveraged exposure in a controlled manner should future market conditions accommodate,” the note added.
(Reporting by Carolyn Cohn, writing by Iain Withers, editing by Elaine Hardcastle and Emelia Sithole-Matarise)
