Kenny Nicoll

Articles from Kenny Nicoll

  • FUTURE WIDENING OF LDI TOOLKIT

    An alternative way to manage interest rate risk launches today. NYSE Liffe’s ultra-long gilt future will offer a new way to gain synthetic exposure to gilts, the biggest challenge is whether it gains sufficient market interest to offer an ultra-long-term alternative. For pension schemes looking to hedge their long-term liabilities, the new ultra-long gilt future could well be of interest. It brings a number of potential benefits, however, its success is not guaranteed.   The new future will target a 30 year maturity, with a 4% implied coupon, £100k notional size a ... ..read more
  • BENCHMARKS: SHOULD YOUR LB MOVE TO LV?

    “The difficulty lies not so much in developing new ideas as escaping from old ones” John Maynard Keynes   “Numbers make the world go round” Gregory’s Girl, 1981  LV   Fifty five is an interesting number. It’s a Fibonacci number and a triangular number (sum of 1 to 10) and the largest Fibonaci number to be a triangular number. It’s also a Kaprekar number: 55 x 55 = 3025, 30 +25 = 55. In accounting and legal circles surviving to fifty-five is a badge of honour. For the thirsty, Timeout rate fifty five as being one of th ... ..read more
  • DODD-FRANK - OCTOBER SEES MARKET SWERVE TO AVOID LONDON BRANCHES

    Summary of changes The issue of Dodd-Frank raises its head again. On October 9th the current CFTC exemption is due to expire. From October 10th any clearable swaps dealt with entities covered by the Dodd-Frank protocol will have to be cleared. In a nutshell this means that any pension scheme or client that deals interest rate swaps with certain US swap counterparties will have to update their ISDA documentation if they want to avoid Dodd-Frank. This avoidance of Dodd-Frank stems from reasons of simplicity, clarity and the sheer regulatory burden of being caught by two sets of regulation ... ..read more
  • SWAPTION HEDGING: GET REAL?

    Pension schemes: The real risk Historically UK pension schemes’ largest financial exposures have been short positions in long-dated interest rates and inflation, arising from the liabilities. This can be seen as being short the long dated real interest rate. While many schemes have instigated LDI programs in recent years to address and manage inflation and rates risk, it is still real rates that remain a core driver of the financial position of the UK DB pension scheme community.   The story of the last few years in LDI has been an increase in sophistication of pension schem ... ..read more
  • NET NET - YOU'RE NOT FLAT

    Netting comes up time and time again in risk management, but it has several levels to it and pitfalls to avoid. Being able to look through the levels of netting to your position at CSA, ISDA, Entity and Group level can seem daunting. Why are there so many types of netting and why does it matter to structure your credit exposure?   To demonstrate what can and cannot be netted let me give a hypothetical case where we have positions versus ABC Bank. To keep the example simple I am using one derivative position and one loan. Assume there is no CSA on the derivative position.   L ... ..read more
  • LDI - MOVING FROM A DIRTY TO CLEAN CSA

    One of the many after-effects of the financial crisis is that derivatives dealers have changed their pricing practices to take account of Credit Support Annex (CSA) terms.  Because collateral terms often vary from bank to bank, these changes are making it difficult for pension schemes to compare pricing between dealers, assess market liquidity, manage counterparty exposures efficiently, and prepare for future central clearing requirements.   As a result, increasing numbers of pension schemes and LDI managers have been working to standardise their CSAs across dealers and when ... ..read more
  • QE3 - THE POSSIBLES AND PROBABLES...

    Thoughts on Quantitative Easing to date:   The original rationale for quantitative easing (QE) was to boost economic demand by pumping more money into the system and also by lowering interest rates, making it cheaper and easier for companies to borrow. Both effects have occurred to an extent but it appears that the transmission mechanism from lower yields to easier borrowing is not working efficiently, partly due to ongoing bank deleveraging and a flight to safe assets.  Alternative 1 – Credit Easing:   The starting point would be monetising existing assets but i ... ..read more
  • RPI V CPI - MAGIC NEW FORMULA WILL LEAD TO SHRINKING WEDGE

    Summary - The difference between RPI and CPI has been a statistical nuisance to understand and explain for the UK government for some time. - The difference stems from two factors: 1) the composition (CPI excludes housing and council tax) and 2) the formula effect. - The Consumer Prices Advisory Committee (CPAC) has formed a working group whose explicit aim is to understand and eliminate the “formula effect.”  This is important as approx 75-100bp of the wedge between CPI and RPI is derived from the difference in formula chosen to assess and collect data. - The largest ... ..read more

Kenny joined Redington in August 2012 and advises clients on structural and regulatory issues concerning LDI hedging and implementation.
 
He oversees major projects in LDI and risk management, from risk policy and IMA reviews to major projects such as implementing 2xLDI investment managers. His expertise includes ISDA and CSA negotiation of commercial terms, techniques for risk management through netting, collateral management and subsequent impacts on liquidity and asset allocation, structured finance and balance guarantee derivatives.

He previously worked at RBS and ABN AMRO for 10 years where he focused on Structured Rates specialising in structured finance and balance guaranteed derivatives. He has also worked several liability management exercises, culminating in the RBS debt buybacks and exchanges of their Tier 1 and Tier 2 debt.

Prior to working in the city, Kenny qualified as a Chartered Accountant with PWC and holds a degree in Economics and Accounting from the University of Edinburgh.

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