Get real: asset managers ditch swaps for loans
With swaps markets becoming less liquid and more expensive, especially for longer-dated trades, some pension funds are winding back the clock and sourcing long-dated, real assets to hedge their liabilities. But the strategy carries its own risks, reports Tom Osborn
Interest rate swaps are losing their appeal. Faced with new clearing and bilateral margining rules – and the prospect of huge cash calls during times of stress – asset managers with long-dated liabilities to hedge are increasingly turning to real assets instead.
Or, to put it another way, pension funds and insurers are replacing banks as lenders, particularly in long-term, index-linked loans to infrastructure projects, social housing partnerships and the like, where the associated regulatory
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