The impact of currency hedging

The technology revolution roundtable

Part 1: Super custodians and administrators contest their share
Part 2: How does technology impact custody mandates?
Part 3: What is driving change in the custodian/administrator space?
Part 4: The impact of currency hedging
Part 5: The cost of Stronger Super
Part 6: What will technological change bring to superannuation?

With superannuation trustee boards struggling to come to grips with the issue, a Super Review roundtable examined the importance of the foreign exchange and hedging in custody relationships.

Mike Taylor, managing editor, Super Review: The NAB FX survey was out today and interestingly its findings relate to the pre-decline of our dollar.

I’m wondering how important, in the whole custody relationship, is the foreign exchange and the hedging aspect.

VIEW ALL

View all

Because that’s a complex area and I know a lot of trustee boards struggle with that. So I’m just wondering, Peter, how important is that?

Peter Curtis, head of investment operations, AustralianSuper: It’s very important to us. We see it as a major source of diversification within the portfolio when looking at the structure of the portfolio – we’re holding assets globally.

The majority of those are [held] directly, but some are still pooled, so we need to understand what’s going on with the pooled vehicle.

Some managers are given mandates that are hedged back to Australia, some aren’t. That ability to find the currency exposure quickly – and know that it’s right – is incredibly important to us and an area that we continue to work at to try and get it quicker and more accurate.

We continue to be amazed that coding conventions and standardisation across the industry for securities – once you get outside listed equities and vanilla-type fixed interest securities – pose enormous challenges to actually sift through the data and get it in a format in a way that we can work with easily.

We’ve been going through the exercise of how we’re going to publish all our holdings up on the website as part of the new APRA requirements.

When you see what the data looks like and then what’s required to try and get it into something that’s meaningful to the actual member, it’s just an enormous challenge and a lot of it’s driven by this lack of consistent ways in which securities are set up and identified in the industry still.

David Braga, managing director, J.P Morgan WSS: Because we’ve been heavily involved in some of the work with the regulators on where that’s going to go and how to make it actually happen, too often we consider sort of very vanilla simple master trust structure that’s predominately equity/fixed income. And you go, ‘well, that’s all fairly straightforward, isn’t it?’

David made the point before about how the asset diversification that’s essential now in a modern fund is just making it really, really quite an interesting exercise to knit together different data from all over the place. 

And of course we’re now getting data from various offshore managers that don’t have the same understanding of the needs to which the funds try to put the data – so that’s going to be a fairly complex problem that we’re all looking to solve with the regulatory drivers through next year. That’s not going to be trivial either.