Funds increase currency management outsourcing

Superannuation fund trustees may have gained a better understanding of currency, but the past two years have seen an increasing number seeking to use external currency overlay managers. 

There are many investment elements that superannuation funds are choosing to take in-house, but few seem to believe they have the skills to manage currency. 

That is the bottom line of the 2013 NAB Superannuation FX Survey, which revealed that while there was a greater understanding of currency in terms of its impact on portfolio decisions, most funds remain content to use external managers. 

In fact, the number of superannuation funds choosing to use external specialists has actually grown over the two years since the last survey. 

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The survey also underscored the degree to which funds adopted a broadly conservative approach to currency, with the majority not looking for the assistance of an active manager. 

Commenting on the survey findings, NAB’s Danica Hampton said that the proportion of superannuation funds managing their currency in-house remained small. 

“By far and away the vast majority employ currency specialists to implement their hedging,” she said. “Eighty-one per cent use a currency overlay manager to implement their strategy. So that suggests that there’s only a small proportion that are doing it in-house. 

“I guess what’s interesting about that statistic is while most are outsourcing their currency hedging, only 21 per cent are using an active manager. Most funds are using a passive currency overlay manager.” 

Asked whether she thought this was an advisable approach on the part of superannuation funds, Hampton said she thought it was consistent with superannuation funds thinking that currency risk was something that happened when you invest offshore, and that employing an overlay manager was a risk management tool. 

“So superfunds are keenly focused on reducing the currency risk associated with offshore investments in an efficient manner, and they understand that it’s quite good to outsource that to a specialist. They’re not trying to use a manager to generate extra returns,” she said.