In search of the perfect match

Demand from pension funds for structured products has slumped during the financial crisis due to the great sell-off of equity risk. But the downturn has raised awareness of how derivatives can help match assets and liabilities, a strategy that is on the increase. Dawn Cowie reports

Pension fund deficits have yo-yoed over the past two years during a period of extraordinary volatility in equity markets. The problem of plummeting asset values was compounded by a rise in the value of liabilities due to falling interest rates.

When equity markets were at their lowest last March, the proportion of UK pension schemes in deficit reached a high of 86%, with a shortfall of £242 billion, according to the Pension Protection Fund’s 7800 Index, a monthly tracker of the total assets and