October saw a minor reduction in funding levels for both the fully hedged scheme and the 50 per cent hedged scheme as both asset classes declined and liabilities got closer to the record lows observed during the LDI crisis a year earlier.
The Broadstone Sirius Index indicates that rising interest rate expectations caused a reduction in the liabilities and matching assets but falls in growth assets caused the total value of assets to fall by more than the liabilities.
The funding level of the fully hedged scheme declined more than that of the half-hedged scheme, despite the latter having higher exposure to interest rate movements.
The funding level of the 50 per cent hedged scheme fell from 98.2 per cent to 97.6 per cent throughout the month, while the fully hedged scheme’s funding level dropped from 68.4 per cent to 67.2 per cent.
Broadstone head of trustee services Chris Rice says: “Economic concerns caused most asset classes to fall in October, which has unsurprisingly been replicated in the funding levels of our schemes. The schemes’ liabilities are now at a level consistent with the position a year ago, which was in the midst of the LDI crisis.
“Thankfully, the volatility of last year has not been repeated, and both schemes are exhibiting a more stable funding level and deficit value. Nevertheless, Trustees should continue to review their investment strategy to ensure that any opportunities to reduce volatility are taken up.”