Pension schemes missed out on attractive levels for inflation hedging prior to the outcome of the Consumer Price Advisory Committee’s (CPAC) consultation into RPI, a survey by F&C Asset Management has revealed.

According to F&C’s most recent LDI survey, inflation hedging activity fell in Q4, down 17% on the previous quarter. This was a result of “uncertainty ahead of CPAC’s consultation into the calculation methodology of RPI”, the asset management firm said.

But the release of CPAC’s consultation report – which proposed maintaining the existing calculation of RPI – was followed by continual increases in the price of inflation hedging, the survey found.

This represented therefore “a missed opportunity for pension schemes looking for attractive levels for hedging,” F&C stated.

In addition the survey, carried out among investment bank derivatives trading desks, found that interest rate hedging transactions increased by 31% to a total of £12.3bn in the fourth quarter of 2012 up from £9.4bn in the third quarter. This was a result of outright hedging and the use of nominal asset swaps, which accounted for the overall increase in the level activity, the asset management firm said.

The survey also found that a number of schemes that had not hedged before or were significantly under-hedged, were implementing strategies in the fourth quarter of 2012.

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