MTAA Super actively made the decision to be temporarily unhedged in 2008 as it was struggling with liquidity problems, according to a source familiar with the transaction.

"Every decision is made by the trustee. Most decisions are straightforward and trustees follow external recommendations," the source told Investor Weekly.

"This decision was a very difficult one in the sense that you had to make a trade off between keeping currency hedging on, which if the dollar kept falling from where it had fallen to at that point was yet going to drain more liquidity out of the fund in a time where liquidity was desperately needed.

"Or if you took the hedging off, you didn't have the liquidity risk, but you had the risk if the dollar bounced back up you would be unprotected and you would suffer a performance loss. It was a liquidity risk versus a performance risk. The trustee decided to put a higher weighting on liquidity risk. And they did protect the liquidity but suffered the performance."

The Australian Prudential Regulation Authority is investigating MTAA Super for the absence of a currency hedge during late 2008.

MTAA Super chief executive Michael Delaney acknowledged last week that the fund had been unhedged for a short period of weeks while it reviewed its hedging strategy.

"The trustee appropriately reviewed its currency hedging strategy during the global financial crisis. It sought and received advice and resolved to appoint an external expert currency manager to manage the fund's currency risk," Delaney said last week.

"The fund appointed a world-leading currency manager, Pareto Partners, to manage its currency risk in May 2009."

But the appointment of the currency manager was made after the fund had suffered the losses and the decision to be temporarily unhedged was a well-considered strategy, the source said.

"It was a very difficult call and every trustee in Australia struggled with it and some people did well and some people did less well," the source said.

MTAA Super rejected the suggestion that the trustees single-handedly decided to take off the hedge.

"It is important to note that investment decisions are made by the trustee board on the basis of external expert advice," the fund said in a statement to Investor Weekly on Tuesday.

MTAA Super's asset consultant, Access Capital, would not comment on client-specific issues.