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Super funds looking to insource FX hedging

Super funds looking to insource FX hedging

Jessica Yun
— 1 minute read

The number of super funds planning to insource their currency hedging implementation has more than doubled over the past two years, according to NAB.

Super funds considering insourcing their FX hedging have increased to 11 per cent from 5 per cent in 2015, according to NAB’s 2017 Superannuation FX Hedging Survey report.

The report revealed data from a survey of 46 super funds with a combined $980 billion in assets under management. Together, the funds surveyed represent 43 per cent of the Australian super fund industry.

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Despite 80 per cent of these funds saying there would be no change from having overlay managers in charge of hedge decision making and implementation, this figure has doubled in recent years.

Similarly, the percentage of outsourcing had also risen to 9 per cent from 5 per cent two years ago, with the report pointing to “the natural growth in funds, and of mergers” as the reason for the upsurge.

“The insourcing may be a product of fund mergers and an increase in size to a point where self-management of currency hedging is warranted,” the report said.

The report also acknowledged that the scope of the survey covered smaller funds as well, “which may anticipate getting to the size where they may consider outsourcing their hedge management”.

Other key findings of the report revealed that 43 per cent of funds were using “dynamic” strategies to hedge international equities, up from 15 per cent in 2015. While more funds (15 per cent) were hedging at the member investment choice level, its implementation largely remained in international assets level (75 per cent).

Additionally, “regulatory rules, policy and environment” was voted as the most important issue (26 per cent) that might prompt a change in hedge policy, with “consultation recommendation” coming in equal second at 23.9 per cent alongside “higher overseas allocation”.

Emerging markets was also a topic of interest for most funds, according to the report, and while exposure rose, the majority (79 per cent) did not hedge their equity exposure.

 

Super funds looking to insource FX hedging
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