Australia Pensions Take More FX Risk for Returns as Rates Plunge
Australian pension funds are taking on more foreign-currency risk, allowing them to be more responsive to global market conditions as they strive to preserve returns in a low interest-rate environment, according to a National Australia Bank Ltd. survey.
Superannuation funds are hedging less of their international equity exposure than they were two years ago, the 2019 NAB Superannuation FX Survey found. The so-called hedge ratio applied to international equities has fallen to 29% from 39% in 2017 and 50% in 2015.
This reflects the decline in the Australian dollar from above 80 U.S. cents at the time of the last survey in 2017, said Drew Bradford, National Australia Bank’s executive general manager markets. “Currencies have come of age in terms of how the superannuation industry is thinking about them,” Ray Attrill, head of foreign-exchange strategy at the bank, said at a briefing in Sydney.
“Increasingly, funds want to think about their currency decisions independently from the decisions that they make about the underlying asset classes that they hold, which arguably says that the currency is acting as something of a diversifier.”
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