Super funds have been able to earn “enormously good returns” from strong economic tailwinds and a calm geopolitical backdrop, but that period of stability is now at an end, and they’ll have to adapt to a more uncertain world.
The boondoggle about superannuation marketing spend is mostly theatre, and does nothing to answer the question of what is really in members’ best financial interests.
NAB’s timely quizzing of super funds on currency
John Bennett
National Australia Bank is conducting its biennial foreign exchange survey of big super funds and other asset owners with a view to publishing the results in November. The bank, which offers passive hedging strategies for clients, couldn’t have picked a better time.
According to John Bennett, NAB’s general manager, Global FI Sales and Research, the survey, which commenced in 2000, has clearly established that most funds regard their currency decision as very important.
“The fact that the Australian dollar has fallen from a peak of US$1.05 to around the US$0.70c mark since the 2013 survey has been a significant factor in the outperformance or underperformance of funds,” he says.
“When asked about currency, the first thing people tend to look at is their asset allocation of domestic versus international assets. They will then look at what is an optimal level of currency hedging for each asset class and the fund.”
The survey is detailed, with NAB conducting face-to-face interviews with fund investment executives where possible.
“It will be really interesting to see what has changed this time around,” Bennett says. “I think all funds and their consultants will be keen to see the results this year.”
NAB is hopeful of having at least 60 participants, which represented approximately a$650 billion in total funds under management in the 2013 survey.
Most funds remember the last time the Australian dollar dropped sharply, in 2007 – from parity with the US to less than 50c. Some had to write out very large cheques – up to or more than $1 billion – to cover losses on FX hedges.
The 2013 survey identified that super funds had an average of 18.2 per cent of their portfolios exposed to currency movements and that 83 per cent ranked currency as an important issue for their fund. Fifty per cent of the funds made strategic hedging decisions at the total portfolio level and 88 per cent said a change in the value of the Australian dollar might bring about a change in their hedge levels.
The survey is the only one of its kind which comprehensively examines how super funds manage their currency risk. It is now used as an aid to their decision making.
NAB will host a one-day conference in Melbourne on 11 November at which the results will be published and discussed. The bank will also follow up with one-on-one debriefing sessions if funds require.
