The liability driven investment (LDI) market now covers more than £0.5trn of UK pension scheme liabilities, according to KPMG.
The consultant’s latest LDI Survey found the total volume of liabilities hedged by UK schemes had reached £517bn by the end of 2013, up 17% from £443bn the previous year.
Meanwhile, the number of mandates employed by UK schemes in 2013 reached 825, compared with 683 the previous year.
KPMG head of LDI in the UK Barry Jones (pictured) said: “Despite bond yields trading at or around historic lows, pension schemes keep buying more LDI. It feels like the London housing market where everyone keeps predicting the top of the market, but we just see more and more demand for it.”
The 17% increase in liability hedging was shared equally between inflation and interest rate protection. This marks a change from last year, when inflation hedging was most in demand.
Around half of the growth in mandates in 2013 were from pension schemes allocating to pooled LDI funds, KPMG said. Despite the growth in pooled funds however, small schemes appear to be the slowest to adopt LDI with only 21% of mandates relating to schemes with total liabilities below £50m.
Elsewhere, the survey found the “big three” providers – L&G, Insight and Blackrock continue to dominate the market with £441bn of liabilities hedged and 485 of the total 825 mandates.
However, their share of the market had fallen slightly from 90% to 85% as the medium-sized LDI firms have enjoyed greater success.
In terms of segregated and bespoke pooled mandates, the “big three” make up 86% of the segregated and bespoke pooled market and 72% of for pooled LDI mandates, the survey found.
Jones added: “With many pension schemes looking to lock-in the profits following another bumper year for equities, we’d expect another wave of de-risking in 2014 and the LDI market is likely to be the primary recipient.”
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