Pension funds appear unfazed by record low interest rates and are locking in what would appear to be unfavourable investments at an increasing rate, according to KPMG, the professional services firm.
KPMG’s research shows that the use of liability-driven investments (LDI), which allow pension funds to invest in a way that prioritises long-term stability but which means they are tied to current low yields, increased 29 per cent in 2014, to £657bn.
Simeon Willis, head of investment strategy at KPMG, said: “The pensions industry is increasingly becoming acclimatised to the new normal of low long-term yields, continuing to increase hedging despite current market levels.”
Despite the historic low yields available, there is “strong demand” for even more LDI, KPMG said in a 32-page report. Liability-driven investing has become popular with pensions funds wanting to limit large and fluctuating deficits.
