A thoughtful article in Lexology here.
More sirens
This (the Siren Call of illiquidity) refers. “Illiquidity is not costless”. But now see this teaser from Moody’s analytics.
“Constructing discount curves for IFRS 17 presents insurers with a number of challenges,” said Christophe Burckbuchler, Managing Director at Moody’s Analytics. “These include the selection of an appropriate methodology that provides stable and robust valuations of liabilities, and production of curves and necessary documentation to meet reporting timelines. Our new service addresses these challenges and enables insurers to accelerate their IFRS 17 project and production timelines.”
It’s difficult to comment without sight of the product, but it looks like a way of using the IFRS 17 provision for a matching adjustment-like illiquidity discount. Moody’s is well-placed to offer such a service with their copious data on default rates. With a suitably chosen historical period, the realised default rate will be lower, perhaps much lower, than the spread-implied default rate. So the difference between the two rates ‘must’ correspond to an illiquidity premium!
It will either end well, or it will not.
Age Co end equity release
We reported here and elsewhere about Age Co (a company owned by the trusted brand Age UK) referring potential borrowers to Hub Financial, who routinely recommended equity release deals from its own parent company (i.e. Just), despite the suggestion of a whole of market offering and a ‘panel’ of providers.
Neither the FCA or the Charity Commission have commented.
Defined confusion pension
A thought experiment. You have a defined benefit pension with a company scheme that backs its pension liability to you with various assets ranging from ultra safe to ultra high yielding. The liability is valued using the rate of return on the assets.
The company offers to buy you out, and will pay you the market value of those assets in return. (Perhaps assume it actually gives you those assets).
The Siren call of Illiquidity
See the great piece here by Jonathan Ford, on why pension fund investors continue to pump huge allocations at private equity, given that the returns, net of fees, are no better than the return on the stock market, and given the pricing opacity and illiquidity of private equity.
An intriguing answer, suggested to him by the hedge fund manager, Cliff Asness, is that “pricing opacity and illiquidity are not actually bugs in the private equity model, but features that investors willingly pay for”.
Co-op unloading part of £8bn pension scheme
Reported here. Co-op is planning two separate £1bn deals with PIC and Aviva respectively. The article implies they are buy-ins (i.e. a reinsurance arrangement where the pension liabilities remain on the scheme’s balance sheet).
“Aviva, PIC and the Co-op all declined to comment.”
Boomers again
An intriguing article in the FT the other day (paywall). Over-65s, i.e. the boomer generation, account for almost half of UK housing wealth.
The generation of people born before the mid 1950s own £1.7tn of residential property by value, or 46 per cent of all housing equity held by owner-occupiers, according to an analysis of official data by Savills, the estate agents. 1
Not dysfunctional at all!
Mick Lynch (assistant general secretary, National Union of Rail, Maritime and Transport Workers) also appears on the Radio 4 interview yesterday with John Ralfe. Starts around 20:30. There is no problem, according to Lynch.
Well it’s no surprise to me that in the New Year with a new Tory government we get an advocate of closing final salary schemes, advocating that there should be reform and verging on closing them. The scheme is not in trouble the way it’s been described [by Ralfe].
The most dysfunctional pension scheme
An interview on Radio 4 with our friend John Ralfe. Here at about 18 minutes through. Begins “the railway pensions scheme is about the most dysfunctional pension scheme that I’ve looked at over the course of the last 20 years”.
The value of merged interests
The BBC leasehold programme will be broadcast on Moneybox today at 12:04. The accompanying article is already available here, and has already attracted the ire of ‘property guru’ Richard Lovell on Twitter.
The ignorance of a BoE regulator is frightening … The principle of merged interests being worth more than the sum of the individual parts is well known in finance and commerce. It’s the justification for M&A! What quality regulation?