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COLLATERAL - HOW MUCH IS THE RIGHT AMOUNT?

Here is a question trustees often ask us...

"How much collateral does a scheme need to hold to hedge its liability risks?"

There isn’t one simple answer that fits every scheme, as each hedging program will differ in various ways.

The article outlines how we help each of our clients get comfortable their risks are hedged, and how to ensure you hold a prudent amount of collateral to provide a buffer against adverse market movements.

At its core is this key question:

What proportion of assets do I need to hold in LDI to meet hedging requirements?

To try and answer this, we take a deep dive into:

  • The nature and value of collateral tests
  • Understanding the risks in your hedging portfolio, plus the size and nature of your hedging trades
  • Demonstrating the power of stress tests 
  • The approaches needed for schemes in the 'Open', 'Middle' & 'End' game

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