‘I’d never seen anything like it’: how market turmoil sparked a pension fund selloff

Yet while headlines understandably focused on the immediate impact on consumers –and borrowing rates started to rise – a storm was brewing in a little-known corner of the pensions market that would eventually require the central bank’s massive intervention to quell it.

However, as asset prices slumped over the week – including UK government bonds, or gilts – those banks required more collateral to offset the pension funds’ liabilities, forcing the funds to dump assets and raise cash at short notice. And so the demands went down the chain: from banks needing collateral, to investment managers, who had to pass the message on to workplace pension fund clients they worked for, as gilt prices continued to plunge.

One of the notes circulating among fund managers was from Goldman Sachs’ credit sales team, which suggested that UK pension funds – which collectively hold about £1.8tn worth of assets – may be forced to stump up as much as £550bn worth of collateral to cover their contracts if gilt prices continued to plunge.

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