Whatās Going On Here?The giant UK insurer Legal & General (L&G) reared its head on Friday to reveal the damage it took during Septemberās pension fund storm: a measly $12 million, as it turns out. What Does This Mean?L&G had a starring role in the post-mini-budget, pension-fund kerfuffle that nearly brought down an entire industry, so taking a tiny Ā£10 million ($12 million) hit to profit ā one-tenth of one percent of the firmās 2021 sales ā is a pretty small price to pay. And sure, there could be aftershocks down the line, especially if once-bitten pension funds steer clear of L&Gās offerings in the future. But emerging with the faintest of scratches from Septemberās pandemonium is no mean feat, and impressed shareholders gave the firmās stock a tidy bump when the news broke. Why Should I Care?For markets: Where the buck stops.
The pension industry was caught with its pants down back in September, and while the Bank of England was right on hand to hoist them back up again, the deficiencies revealed by the slip havenāt disappeared. See, the reason the crisis got so bad is because pension funds were pursuing risky, debt-funded investment strategies. And if theyāre forced to borrow less in the future, they could come up short when itās time to pay out to retirees. Thatād be bad news for the firms that sponsor the pension funds: theyāre the ones on the hook for any shortfalls that crop up down the line.
The bigger picture: Look on the bright side.
If thereās another key takeaway from the pension-fund soap opera, itās this: crises often come from left of field, but theyāre almost never as bad as the sudden shock makes them seem. Remember, some doomsayers claimed that the global financial crisis could spell the end of capitalism, and others reckoned air travel and concerts were done for when Covid hit. When crisis strikes, then, the optimists are normally closer to the truth than the worrywarts. | 