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Corporate Pension Funds' Investment Strategies and Financial Stability: Lessons from the Turmoil in the UK Gilt Market

March 24, 2023
ITO Yuichiro, KASAI Yoshiyasu, TODOROKI Ryotaro*, TOYODA Akitoshi, HORIE Rikako
Financial System and Bank Examination Department

*Currently at the Okayama Branch.

In September 2022, interest rates in the UK gilt market rose sharply. The steep rise in interest rates caused UK corporate pension funds to face additional margin calls that exceeded their cash reserves, resulting in a temporary liquidity crunch. The reason was that UK corporate pension funds, due in part to a search for yield to resolve funding shortfalls, had increased their reliance on leveraged transactions using derivatives, etc., but lacked sufficient cash reserves and measures to deal with the drying up of liquidity. This episode suggests that even institutional investors who make long-term investments can pose a threat to financial stability. In Japan, however, there has been no excessive search for yield among corporate pension funds. Moreover, the use of leveraged transactions is limited, and corporate pension funds' assets under management are composed of assets that are relatively easy to convert into cash. On the other hand, among life insurers, which, similar to corporate pension plans, have long-term liabilities, the use of leverage transactions has increased somewhat amid the scheduled introduction of new regulations that require the economic value-based valuation of liabilities. However, life insurers' financial soundness and profits have been improving, and their liquidity is fairly robust.


The Bank of Japan Review Series is published by the Bank to explain recent economic and financial topics for a wide range of readers. This report, 2023-E-3, is a translation of the Japanese original, 2023-J-2, published in January 2023. Views expressed are those of the authors and do not necessarily reflect those of the Bank.
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