Schemes turn to swaps

Many funds seeking to transform assets are in too poor a state to benefit from derivatives

Pension funds are set to make increasing use of derivatives as a hedge against problems inflation is causing within portfolios. Inflation is a major risk faced by pension funds, with as much as 70% to 80% of a scheme's liabilities inflation related. Traditionally, pension funds hold equities to counter inflation risk but in the recent bear market, pension fund managers traded equity for fixed income holdings to protect assets from the falling equity market. This has lead to pension managers countering inflation risk by moving from fixed income bonds to index-linked bonds. But another...