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VicSuper moves to reduce sovereign risk
VicSuper has taken measures to insulate its core international fixed interest portfolio against sovereign risk.
Working with its investment adviser Towers Watson, the fund has customised the Barclays Global Aggregate Benchmark in order to place caps on the amount invested in countries with large deficits to fund.
The previous Barclays benchmark used by VicSuper was a market-cap weighted index with sovereign bond exposure of around 60 per cent.
The new, customised Barclays benchmark has a sovereign component that applies a 10 per cent country cap and a 30 per cent collective cap on Eurozone countries, according to a VicSuper statement.
"This index is then overlayed with the BlackRock Sovereign Risk Index - a non-investable index that measures relative government creditworthiness in a systematic manner," according to the statement.
VicSuper's chief investment officer Oscar Fabian acknowledged there was no individual solution to investing in global bonds that could safeguard against systemic risk.
"However, we strongly believe that this new approach to sovereign exposure will go a long way towards assuaging our medium-term concerns about the concentration and default risks in the government bond market," Fabian said.
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