BT Pension Plan Lost £11 Billion in Buildup to U.K. Bond Meltdown

Despite the steep loss, CEO Morten Nilsson says there is ‘no worsening’ in the plan’s funding position.


BT’s pension fund lost an estimated £11 billion (US $12.43 billion) in the build up to the U.K. bond market meltdown last month, which it attributed mainly to the performance of its liability hedging investments.

“Following the year-end, there was a significant fall in the value of the scheme’s assets, during a period of significant market volatility in the second half of September,” the BT Pension Scheme said in its annual report for the fiscal year ended June 30. “Prior to the Bank of England’s gilt market intervention, there was an estimated £11 billion fall in the value of the scheme’s assets.”

Nearly every defined benefit plan in the U.K. hedges interest rate and inflation risk using a combination of British bonds – known as gilts – and interest rate and inflation swaps, which are financial instruments the BT pension fund uses to protect against changes in interest rates.

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

“During this time, our hedges have performed as expected, and whilst the value of the scheme’s assets has fallen over this period, there has been no worsening in our estimated funding position,” Morten Nilsson, chief executive officer of BT Pension Scheme Management, wrote in the report.

The proportion of the change in liability value hedged is known as the “hedge ratio,” which is intended to reduce volatility in the pension plan’s funding position and increases benefit security. The report said that to mitigate the effect of changes in interest rates and inflation expectations, the pension fund’s interest rate and inflation hedge ratios have been increased to approximately 95% and 90%, respectively, over the last few years.

This means that approximately 95% of any change to the plan’s technical provisions due to changes in interest rates, and approximately 90% of any technical provision change due to inflation expectations is expected to be offset by the change in value of the cashflow-aware portfolio, which includes investment-grade credit, secure income, and government bonds and cash.

“We have continued to work closely with the BTPS trustee board to refresh our inflation stress tests and scenario analysis,” Nilsson said.

Related Stories:

U.K. Pensions Doom Loop May Not Be Over

Fright Among British Pension Funds as Bonds Buying Ends

U.K. Pension Withdrawals Surge Amid Rising Inflation

Tags: , , , , , , , , ,

Stanford University’s Endowment Loses 4.2% in Fiscal 2022

Total assets under management decline to $40.1 billion from $41.9 billion in fiscal 2021.


Stanford University reported that its endowment’s investment portfolio lost 4.2% net of all costs and fees for the year ending June 30. As a result of the loss, as the asset value of the merged pool, the endowment’s main investment vehicle, declined to $40.1 billion from $41.9 billion a year earlier when the portfolio returned 40.1%.  

The university said that despite the loss, its investment portfolio outperformed the median 6.3% loss for US college and university endowments for the year, according to Cambridge Associates. It also said that a typical passive portfolio comprised of 70% global stocks and 30% high-quality U.S. bonds lost 14.6% over the same period.

“Diversification and disciplined portfolio management helped preserve value relative to equity and credit markets, which sharply corrected following their very material rise during the previous year,” Stanford Management Company Chief Executive Officer Robert Wallace said in a statement. “It seems prudent to expect continued financial market volatility amid economic uncertainty and an altered interest rate environment.”

The endowment, which includes more than 7,700 funds, reported five-, 10-, and 20-year net annualized returns of 10.9%, 10.2%, and 10.0%, respectively, compared with the median college and university endowment return of 8.4%, 8.1%, and 7.4%, respectively, over the same time periods.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

The asset allocation of the merged pool as of July 1 was 37% in private equity, 18% in absolute return, 17% in international equity, 11% in real assets, 9% in fixed income and cash, and 8% in domestic equity.

Related Stories:

Harvard Endowment’s 1.8% Loss Deemed ‘Very Good Result’

Columbia, Brown, Iowa Endowments Lose 7.6%, 4.6%, 2.4%

MIT, Bowdoin Endowments Lose 5.3%, 7.1% in Fiscal 2022

Tags: , , , , , , ,

«