Super funds shift spotlight on currency

Reviewing liquidity crucial

By Victoria Papandrea
Fri 26 Jun 2009

Extreme currency movements have prompted super funds to dramatically change their focus on the asset class, a NAB survey has found.

Superannuation funds are now taking currency management very seriously, as a result of the cash impact of hedging which hit many portfolios when the global financial crisis unfolded during 2008, according to a National Australia Bank (NAB) survey.

The superannuation FX survey, which covered 34 of Australia's largest funds as well as 12 New Zealand funds, found 85 per cent of respondents ranked currency as an important issue going forward.

"It was top of mind of almost everyone we spoke to," NAB managing director insurance and funds Donald Hellyer said.

"Extreme currency movements have hastened the change in focus."

The survey found there is also a growing trend in the market for superannuation funds to now look at currency on a total portfolio basis rather than having different hedging strategies for different asset classes.

Hellyer said access to liquidity to fund hedged positions was also an overriding issue for many superannuation funds, after the Australian dollar hit a low of 60 cents in October 2008 which resulted in a variation of 38 cents over a three-month period.

The impacts of September and October 2008 will change how trustees run their superannuation funds in the future, Hellyer said.

"It will define little things about how much illiquid assets are you going to have, and more importantly what return you need to get from illiquid assets to justify it being in your portfolio," he said.

"In the same way that banks have a lot of people trying to work out and manage their own liquidity, superannuation funds now have to spend a lot more time considering what that liquidity component looks like."

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