Gilt Market Volatility

The challenge

Our client had liquidity issues arising from the investment strategy that Broadstone inherited when the Scheme was newly appointed. Due to significant interest rate rises, the Scheme faced a high volume of collateral calls to support the hedging programme. The Scheme did not have a robust collateral management framework in place.

The solution

Broadstone implemented a collateral management framework and reorganised the Scheme’s liquidity structure. This involved selling down some of the illiquid assets held to provide collateral for the hedging programme but not those assets with penalties attached. Broadstone had sensible conversations with all stakeholders throughout, engaging in regular communication with all the key stakeholders, including exchanging calls with the LDI portfolio manager.

Broadstone managed to:

  • Put a liquidity and collateral waterfall in place with the LDI manager which was automated;
  • Use automation to remove operation risk as the internal team working at the client was conducting all trades and transfers to the LDI manager; and
  • Arrange and advance contributions from the Employer for collateral as liquidity could not be obtained from anywhere else in the portfolio.

The outcome

The client now has a collateral waterfall framework in place which is reported on every quarter. Broadstone’s proactive communication helped the Trustee keep its journey plan on track and defused any challenge from the Employer.

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