Not quite as simplistic as I thought.

https://www.smh.com.au/business/mark...29-p5blui.html

The UK pensions market is largely a defined benefit market, with the funds needing to match long-term liabilities with the assets they hold. When rates rise quickly the value of their bond holdings falls while the net present value of their liabilities doesn’t change as materially, threatening deficiencies in the funds.

In the UK that potential problem has been exacerbated by the widespread use of leveraged derivative strategies (called “Liability-Driven Investment” or LDIs) that are used to effectively hedge their liabilities. The LDIs are estimated to represent about £1.5 trillion of assets or, as the Financial Times noted, roughly the size of the entire UK bond market.

The collateral for those derivative positions is largely the funds’ fixed interest securities holdings. As rates spiked they would have been hit with what are essentially margin calls and forced to dump some of their bonds, creating a spiral that could only end in disaster for the funds, the wider market and ultimately the UK financial system.

They hedge their liabilities with "Liability Driven Investments". I assume the "liability" is to the investor in the fund.

I am a bit lost, interest rate rises reduce the value of their bond portfolio but aren't LDIs hedging this? I thought hedging was to protect an investment in all situations not make a bad situation worse.