FT on Huge UK Money Fund Inflows
The Financial Times published the piece, "UK money funds draw 'gigantic' inflows as pension schemes build up war chests," which tells us, "Sterling money market funds have gathered £53bn in just a fortnight as UK pension schemes rush to build defences against market volatility before the Bank of England's emergency bond-buying programme ends on Friday. The UK pensions industry has been in a dash for cash to avoid a fresh liquidity crisis if there is a repeat of the chaotic moves in the gilt market caused by chancellor Kwasi Kwarteng's package of unfunded tax cuts in his September 23 'mini' Budget. The powerful inflows into money market funds, which act in a similar way to a bank account for institutional investors, are one of the clearest signs yet of how schemes are selling assets in order to build a war chest that they hope will be big enough to weather any new collateral calls." The article continues, "The pension schemes need quick access to cash since many use liability-driven investment (LDI) strategies to match their assets and liabilities -- vehicles that required large injections of collateral after Kwarteng's fiscal statement sent gilts tumbling. At the end of last year, LDI schemes covered about £1.4tn in defined-benefit pension fund liabilities, according to The Pensions Regulator." The FT quotes, "The inflows into sterling money market funds 'have been gigantic', said Peter Crane, president of Crane Data, a specialist service focused on the money market sector. 'The growth for sterling money market funds has been far stronger than for the dollar and euro-denominated funds that trade in Europe, which indicates that specific UK issues are driving the increase.' Sterling money market fund assets registered £251bn on October 11, a 27 per cent rise from September 28, the day the BoE launched its intervention to avert 'fire sales' by pension funds." The article adds, "Holdings of the most liquid assets in sterling money market funds have also risen this month, according to Fitch, the rating agency. 'This suggests the managers of these funds are anticipating large withdrawals related to LDI collateral calls to pension schemes or to build liquidity cushions in light of the extreme gilt market volatility,' said Minyue Wang, an analyst at Fitch. The majority of the inflows have gone to sterling funds run by BlackRock, Legal & General Investment Management and Insight Investment, the asset managers that oversee the biggest LDI portfolios." Crane Data's Money Fund Intelligence International shows GBP-denominated money funds rising by £35.0 billion to £249.3 billion month-to-date in October (through 10/13/22). See also, The Wall Street Journal's "What Happens Now That the Bank of England Has Stopped Buying Bonds," which says, "The Bank of England is hoping a safety net in the form of short-term cash infusions will stabilize markets after it wound down its emergency bond-buying program on Friday. Bankers and investors are skeptical it will work. The Bank of England launched what it called a temporary repo facility on Monday when volatility rocked the U.K.’s government debt markets."
