Apollo Global revealed it bought over $1bn of assets from distressed UK pension funds as they scrambled to raise cash in the near-meltdown sparked by Liz Truss’s tax-cutting mini-budget.
The US private capital giant reportedly told investors on Wednesday that it bought up around a third of the collateralised loan obligations sold by UK pension funds as they scrambled to raise cash in a liquidity crunch triggered by the crisis.
UK defined benefit pension funds deploying debt-fuelled liability-driven investment strategies, which are linked to yields on government bonds, were forced into hefty collateral calls as the gilt market was rocked by the mini-budget, forcing them to offload assets on the cheap.
Apollo Global revealed it snapped up $1.1bn dollars in total amid the crisis and said there was “nothing inherently wrong with the CLO tranches we were buying”.
“[They] happened to be the most liquid asset that those entities had to liquidate in order to cover their leverage and margin issues,” he said, as reported in the Financial Times.
The comments from Apollo came as the New York buyout giant beat analyst estimates of with quarterly net income of $801m. Fee-related earnings came in at a record $365m.
Apollo is one of slew of US investors to have bought-up cut-price British assets as pension funds rushed to boost their cash holdings in the crisis.
Goldman Sachs Asset Management said last month it was seeing discounts of “20 to 30 per cent” on assets, which was “absolutely an opportunity”.
The Bank of England stepped in to steady the ship in the wake of the budget last month with a gilt-buying programme designed to reverse the sharp fall in government bond prices.
Pension funds have since been selling off their illiquid holdings so they can raise cash quickly in the event of another spate of cash calls and a run on assets.
The crisis has ignited calls for an inquiry into how LDI strategies were allowed to proliferate unchecked. MPs have since announced an inquiry
The Work and Pensions Committee has said it will now investigate the crisis and the role of regulators.
The Pensions Regulator is set for parliamentary scrutiny over whether it clamped down properly on LDI and whether it currently had “the right monitoring arrangements”, as well as whether DB schemes had “adequate governance arrangements in place”.