Derivative Laws May Push Pensions to Take More Risk, NAPF Says

International rules designed to make derivative transactions safer by increasing collateral requirements may lead pension plans to take unnecessary risks, according to the U.K.’s National Association of Pension Funds.

Higher costs associated with derivative trades through increasing margin requirements could make pension funds abandon hedging strategies, making their assets more susceptible to moves in inflation and interest rates, the London-based NAPF said in a policy paper dated March 15.