Surviving the collateral crisis

Yesterday evening I spoke at Insight Investment (Insight) meetup. Adam the head of architecture and I presented a case story about the Collateral teams involvement in the Collateral Crisis last September. For those who don’t remember former Prime Minister Liz Truss’ chancellor Kwasi Kwarteng gave a mini budget which had a series of unfunded tax cuts. The market reacted very badly to this news, causing UK government bond (gilt) prices to fall sharply. Yields spiked 1.6 percentage points in less than three days.

For Insight, the largest provider of Liability Driven Investment (LDI), this meant that as Gilt prices crashed there were large margin calls. These forced the sale of gilts which further pushed down the price action, the price spiralling downwards. Our systems used to project and manage these were severely tested, firstly we saw a huge uptick in the volume of transactions. Secondly traders needed some information which was not readily available. We had to quickly get it to them, firstly by data extracts then by quickly creating new application views so that they were able to view the liabilities more holistically. Creating something under time and business pressure was difficult, one of my colleagues put in long hours and ended up on sick leave to recover afterwards.

I created a slide deck based on the experience of the team both anecdotal and system data. Adam did the bulk of the presentation, while I did a section on the team structure.

There was some really good engagement, with a lot of questions and interaction with the audience.

The experience taught me something important: when the business truly comes together around a shared problem, teams can perform at a remarkable level. The usual friction fell away, we had the clarity and freedom to focus and deliver. That said, it came at a cost, and it’s worth acknowledging that sustaining that intensity isn’t without consequence. I hope we can find ways to create more of that focus without needing a crisis to unlock it.

Unfortunately I am unable to post the slide deck publicly, but feel free to contact me on LinkedIn or join one of our upcoming meetups.