CSSF communication on Liability Driven Investment Funds
In the light of the volatility in yields associated with UK Gilts back in September 2022 and its associated impact on LDI Funds, the CSSF engaged with the alternative investment fund managers managing LDI Funds denominated in GBP in order to improve the resilience of these funds, in close cooperation with other relevant UK and EU authorities. On 30 November 2022, following a series of interactions with the Central Bank of Ireland (CBI – Ireland) and the European Securities and Markets Authority (ESMA), the CSSF published in this respect a communication to inform that it issued a letter to relevant investment fund managers on measures to be taken in relation to the management of GBP LDI Funds1.
In this context, the CSSF notes the Bank of England staff paper published on 29 March 2023 regarding its recommendation and explainer on liability driven investment (LDI) minimum resilience2.
While the CSSF continues to engage with alternative investment fund managers and relevant authorities in order to ensure that the structure of LDI Funds provides on an ongoing basis for a resilient set-up, it would like to remind that pending the outcome of this ongoing follow-up work, it expects at the current juncture, investment fund managers managing LDI Funds denominated in GBP to maintain the Yield Buffer in the region of 300-400 basis points as build up following the September 2022 episode.
The CSSF also expects from alternative investment fund managers of LDI Funds denominated in other currencies to maintain a sufficient level of resilience enabling them to absorb severe but plausible market shocks.