Hard Brexit Could Raise UK Pension Deficit by £219 Billion

Report also says a ‘soft Brexit’ could reduce pension deficits and liabilities.

A hard Brexit will likely be difficult for UK pension funds, and could cause their aggregate buy-out deficit to increase by as much as 37%, or £219 billion, and their liabilities to rise 14%, according to a report from specialist risk manager Cardano. 

“Brexit presents a very different challenge to UK pension funds, financial markets, and the national economy,” Kerrin Rosenberg, Cardano’s UK CEO, said in a release. “Since the EU Referendum we have had this political event dominate the markets’ mood and attention—yet the quantum and characteristics of the potential market and economic impacts remain relatively unknown.” 

According to Cardano’s analysis, a hard Brexit scenario would initially lead to the Bank of England easing policy and lowering growth expectations, which would likely lead to lower gilt yields and a declining pound. Conversely, the firm said a so-called soft Brexit would enable growth and could increase the pace of Bank of England rate hikes, strengthen the pound, and send gilt yields higher. This could result in a 9% drop in liabilities, and reduce the buy-out deficit by 24% or £138 billion, said the report.

“As we enter into 2019, Brexit will be just one of a range of risk factors that schemes should be proactively addressing in their portfolio positioning,” said Rosenberg. “We have reached inflection points across a number of fronts: the potential impact of monetary tightening, the global growth trajectory, and rising protectionism should be front of mind for trustee and their advisers going into the New Year.”

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Cardano’s risk model indicates the 14% rise in aggregate UK pension liabilities would be spurred by the impact of falling gilt yields, a weakened sterling, and a corresponding rise in inflation on long-term pension obligations. However, it also showed that a hard Brexit scenario could lead to a 6% spike in UK pension assets due to “currency tailwinds” because the potential fall in sterling would be positive for the international constituents of the FTSE 100 and pensions’ allocation to global equity and debt. On the other hand, this potential improvement would be canceled out by a 14% rise in liabilities, thus expanding the UK’s aggregate funding gap.

“As we enter into 2019, Brexit will be just one of a range of risk factors that schemes should be proactively addressing in their portfolio positioning, said Rosenberg. “The risks to schemes’ funding positions should not be underestimated, and we would encourage UK schemes to think critically about the scale and scope of risks that Brexit may present and to act now—before it is too late.”

In Crowd of more than 300, 105 Leading Asset Owners Celebrate Nominees during CIO Innovation Awards

Celebration of an extraordinary year draws large, vibrant group of CIOs and leading investors.

Crowds of investors and CIOs jumped to their feet to applaud Lifetime Achievement Award winner Mansco Perry III, executive director and CIO of the Minnesota State Board of Investment, with two standing ovations on Thursday evening during CIO’s Innovation Awards gala at the glittery NYC Public Library.  TJ Carlson, CIO of the Texas Municipal Retirement System and longtime friend of Perry, spoke about his fruitful career. The State of Minnesota announced that due to his many accomplishments, Dec. 13 is now Mansco Perry III Day in the state.

Former NYC Pensions CIO Scott Evans, winner of the 2017 CIO of the Year award, knighted Chris Ailman of CalSTRS as 2018’s CIO of the Year before a crowd of more than 300, with 105 asset owners.

After a seven-member hotseat panel at CIO’s Influential Investors Forum at the Harvard Club moderated by David Holmgren, CIO of Hartford HealthCare, the audience was polled, and Chad Myhre, portfolio manager at  Missouri Teachers Retirement System, was voted the NextGen of the Year by CIOs and managers in attendance. Former Innovation Award winners Holmgren and Intermountain Healthcare CIO Jacque Millard presented the 2018 Healthcare award to Anthony Waskiewicz of Mercy Health, St. Louis.

Other winners are as follows:

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Collaboration

David Holmgren (Hartford HealthCare)


Corporate Defined Benefit Pension Plan Above $15 Billion

Harshal Chaudhari (IBM)


Corporate Defined Benefit Pension Plan Below $15 Billion

Susan Ridlen (Eli Lilly)


Defined Contribution Plan

Bob Hunkeler (International Paper)


Endowment

Anne Dinneen (Hamilton College)


ESG

Dan Chu / Michael Brune (Sierra Club)


Foundation

Rosalind Hewsenian (Helmsley Charitable Trust)


Healthcare Organization

Anthony Waskiewicz (Mercy Health, St. Louis)


Public Defined Benefit Plan Below $15 Billion

Sam Masoudi (Wyoming Retirement System)


Public Defined Benefit Plan Between $15 Billion and $100 Billion 
Jonathan Grabel (LACERA)


Public Defined Benefit Plan Above $100 Billion

Chris Ailman (CalSTRS)


Sovereign Wealth Fund

Paul Ballard (Texas Treasury Safekeeping Trust Co.)


Consulting

Allan Martin (NEPC)


Asset Management/Servicing Winners:


Fixed Income/Credit

DoubleLine


Equities

JP Morgan Asset Management


Multi-Asset

PineBridge Investments


Private Equity

Warburg Pincus


Hedge Funds

Citadel


Real Assets

Aberdeen Standard


Defined Contribution Strategies

Northern Trust


OCIO

Goldman Sachs Asset Management


Corporate Strategies

Capital Group


Transition Management

Pavilion


Data & Technology

Backstop Solutions


ESG

Invesco


Emerging Markets

PGIM

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