BT Pension Scheme announces $12 billion drop in assets amid chaos in government securities market

Assets fell 18.4% for the two years ended June 30. Liabilities, however, fell by a larger value, falling 21.7% to £51.3bn. The deficit fell to £4.4bn as of June 30, down 45.1% from figures as of June 30, 2020.

The fund’s interest rate and inflation coverage ratios have increased to around 95% and 90%, respectively, “to mitigate the effect of changes in interest rates and inflation expectations”, says The report.

The fund’s internal manager, BT Pension Scheme Management, which is 100% owned by the pension fund, “uses derivatives to manage the risk profile of the scheme; this includes their use to mitigate the impact on the regime’s funding of changes in inflation and interest rates, and to limit the impact of significant falls in stock markets,” the report says. Derivatives are also sometimes used to rebalance asset allocation and reduce the risks associated with foreign currency exposure.

“We have continued to work closely with the BTPS Board to update our inflation stress tests and scenario analysis in light of recent announcements to understand the impact of inflation shocks. on our portfolio,” CEO Morten Nilsson said in the report.

As of June 30, the fund’s asset allocation was 27.5% investment grade credit, 23.3% government bonds and cash, 16% other growth assets, 15.8% equities, 9.4% real estate and 8% secure income assets.

By region, BTPS’ exposure was 57.6% in the United Kingdom, 20% in the United States, 9.6% in Europe, 4.6% in the rest of the world, 4.3% in the markets emerging countries, 2.4% in Asia-Pacific excluding Japan, 1% in Canada and 0.5% in Japan.