TfL Pension Fund and the 2022 Gilt Market Crisis

On September 27, 2022, Padmesh Shukla, CIO of the Transport for London (TfL) Pension Fund, was keeping a careful eye on the turmoil in the U.K. sovereign bond (or gilt) market. When the new government announced the largest tax cuts the U.K. had seen in half a century, gilts saw an historic sell-off. Gilt yields soared and many pension funds faced urgent margin calls on their leveraged liability-driven investment (LDI) strategies to maintain collateral. As he watched the crisis unfold, he wondered if it was a reflection of structural flaws in the market or the result of simply short-term panic? While the TfL Pension Fund had a smaller LDI book than its peers, Shukla watched the crisis unfold with interest. Should the TfL Pension Fund act quickly to buy cheap gilts while the window was open, or was it time to rethink the fund's approach to hedging and risk?