CIAO AMICI MEI

It’s been a troubling week. We’ve traditionally prized ourselves on our sound government and our fiscal prudence. We’ve prized  our grown-up diplomacy. We’ve a seat near the very top of that G7 table. But we’ve been found wanting.

We’re in laughing-stock territory. It’s shameful.

Yet something I read – sorry I can’t remember who said it -  made me feel a lot better. They said that for the first time ever, living in Britain was like living in Italy. You know exactly what they mean - the economy’s in turmoil, the level of debt’s ridiculous, there’s upheaval at the top of an ever revolving leadership, there’s sleaze, corruption and no one takes us seriously yet……

People are crowding into restaurants, drinking good wine, laughing at the poor fools in government and getting on with life. As things get worse up there down here we’re having a party. 

Saluti!

They had Berlusconi we had Boris. 

They have Giorgia we have Liz. 

We are suddenly rather alike it would seem.

Hopeless, utterly hopeless, but at least we both get the important things right.

Food, drink and laughter. Especially laughter.

I was cheered by this because the alternative is to start taking the critical issue of Liability Driven Investment Funds very seriously indeed.

Liability Driven Investment Funds - what the hell are those?

Apparently these are critical to the health of Pension Funds.

Here’s how they’re described:

Every defined benefit pension scheme has promised to provide retirement income for its members.  To do so, a scheme aims to have sufficient assets  to cover its liabilities. This has led many pension schemes to adopt liability driven investment (LDI) strategies which aim to enable pension schemes to reduce risk and maintain or improve funding levels over time, increasing the probability that they will  achieve their ultimate objective.

To achieve this they rely on having big bags of Government gilts so as to maintain stability, security and safety in their portfolios. Because?

Because Government gilts and bonds are the safest thing we have so whatever else happens they are rock solid safe. Until a week ago, that is, when after that Mini Budget their values plummeted. 

Panic for Pension funds and their safety, security and stability.

And then someone took a rather harder look at these Pension Funds and found that many were performing really rather badly even before this LDI body blow with year on year declines across the board of 12% and on some of the big name funds declines of 50%. 

So feeling by now resolutely Italian - facciamo una festa-  I opened another bottle of Prosecco, slowly munched a couple of cicchetti and reflected on two things.

It seems virtually no one practising in the financial sector has ever heard about or knows anything about these LDIs yet  - sit down for a second - the value of UK Pension funds is between £2.5 trillion and £3 trillion ( yes, that’s the total size of the UK economy.)

And, excuse me, this is our money, money that we have lent to Pension Funds because they’re trustworthy rather like, say, the Mafia.

I’ve just remembered a 1984 song  by Bananarama with the refrain “Talking Italian” the first line of which is “Hopes dashed to the floor.” We should all listen to it, buy a Vespa and get over to Italy where the sun shines, the food’s exquisite and no one pretends they know what’s going on.

After all if the top financiers have never heard of the fund that’s causing so much anxiety in the markets we might just as well.