Bank Downgrades - What Should Pension Funds Do?

    View Author October 2011
    At the end of last week, pension fund investors had to digest the news of further quantitative easing from the Bank of England (and work out what effect that might have on their liabilities because of the likely pressure on gilt yields). At the same time, the widely expected downgrading of a number of UK banks occurred, following in the wake of the same credit reassessment of a number of US and European institutions.

    The principal impact of the latter development on UK pension funds is in relation to derivative contracts which funds have entered into with bank counterparties as part of an investment derisking or Liability-Driven Investment strategy. Although investment advisers and LDI managers will be primarily responsible for recommending a strategy, there are important legal issues to consider arising from such downgrades.