UK’s largest pension fund loses £16bn in LDI debacle
- Universities Superannuation Scheme regulates the pensions of higher education staff
- It is one of the few final pay schemes that is still open to new entrants
- It invested heavily in controversial liability-based investments despite warnings
Britain’s largest private sector pension fund has lost £16bn after unraveling an ‘unnecessary’ debt-driven investment strategy.
The Universities Superannuation Scheme provides the nest eggs for 528,000 former and current higher education employees.
It is one of the few defined benefit plans still open to new participants that provides a pension based on a participant’s last salary.
USS invested heavily in controversial liability-driven investments (LDIs) – despite warnings from sponsoring employers in Oxford, Cambridge and Imperial College London.
On the edge: USS invested heavily in controversial liability-based investments — despite warnings
LDIs are designed to ensure that plans can fulfill their promise to pay out future pensions. But they came loose after last year’s mini-budget collapsed the pension market.
The defeat, which exposed huge loans hidden in the pension system, was only halted by a £19bn Bank of England bailout.
USS, led by former pension regulator Bill Galvin, insisted it was not a big user of leveraged LDIs. But just-published accounts show the plan’s assets fell from £89bn to £73bn last year.
“These bills paint a terrible picture of unnecessary losses,” says pension expert Henry Tapper.
Galvin, who retires this year, was an architect of LDI strategies as an industry regulator. He received £790,000 in his last year at USS, including a bonus of £262,000.
Despite the fact that his investments included a 20 per cent stake in troubled Thames Water, the plan’s overall funding position improved through higher government bond yields, reducing liabilities.