[benj111]

I understood it (after reading Matt Levine) that it was more an accounting requirement.

Ie the books need to balance today, even though they're always going to balance in 30 years.

You seem to be suggesting that they took an unnecessary risk.

Is this my misunderstanding or yours or is it a combination?

[FabHK]

The books don't need to balance now: there can be a shortfall. That, however, is more of an accounting artefact (the books are not balanced now, but it is going to be ok in 30 years if the stocks outperform as expected).

The problem is that as rates fall, the shortfall increases. That's still just an accounting artefact, but it looks bad. To mitigate the bad look, the funds entered real hedges, which are now (with rates moving the opposite way) blowing up.

So, my understanding is that the funds took a real and unnecessary risk to mitigate what was basically just "bad optics".

[uup]

But did they really enter into these hedges after the GFC? It seems like rates were already near-zero so it wouldn’t have made much sense to hedge against lowering rates.

[benj111]

Id read the Matt Levine article https://www.bloomberg.com/opinion/articles/2022-09-29/uk-pen...

The hedge is because they moved to stocks because of low yields on bonds.