Volatility making currency management 'critical' for super funds
Currency management has become a critical component of super returns, or lack thereof, as a result of the extreme currency swings in the global financial crisis, according to the latest NAB superannuation FX Survey.
The 2009 survey found that 85 per cent of respondents ranked currency management as an important or very important issue, compared to 74 per cent in 2007.
“This heightened awareness is a consequence of the cash impact of hedging hitting many portfolios with a vengeance over the course of 2008," according to NAB managing director of insurance and funds Donald Hellyer.
“Extreme currency movements have hastened the change in focus.”
Hellyer said access to liquidity to fund hedged positions when the Australian dollar moved dramatically was a paramount issue for many super funds, given the Australian dollar hit a high of 98 cents against the US dollar in July 2008 and a low of 60 cents in October 2008 — a variation of some 38 cents over a three-month period.
This volatility meant the currency contribution to the funds’ overall portfolio performance was “huge” in 2008.
For the MSCI ex-Australia index, the currency contribution to return unhedged would’ve been 22 per cent and 3 per cent fully hedged, Hellyer said.
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