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Currency committees become the norm
Full superannuation trustee boards may not be spending every meeting talking about currency, but the 2013 NAB Superannuation FX Survey suggests many funds have established sub-committees which are examining currency issues very frequently.
Superannuation boards appear to be making better decisions about currency and have a better understanding of how it fits with their broad investment objectives.
That is one of the key findings associated with the latest NAB Superannuation FX Survey being released this month.
NAB Director, Currency Overlay, Danica Hampton said there were few major surprises in the 2013 survey, but a number of beneficial trends had emerged which pointed to the maturing of attitudes towards currency and foreign exchange.
“I thought there was a clear trend when you’re looking through the results; it really feels like superannuation funds have got a good handle on currency issues now,” she said.
“It’s really encouraging to see that there seems to be a greater understanding about how currency can ripple through the portfolio, and how significant those decisions can be. I think that superfunds have got more perspective about that now and as a result, they’re making very informed decisions.”
Hampton said the degree to which this increased understanding – and the extent to which its impact on decision-making had evolved – had been underscored not only by the raw statistics generated by the survey, but also by the comments which had been made by the respondents.
“It really feels like superannuation funds have got a good handle on currency issues now.”
Hampton said she thought superannuation funds had gained more perspective about the impact of currency on portfolios.
“They’re making, I think, informed decisions and I think that’s really encouraging. And that came out of both the statistics, as well as some of the anecdotal comments that were in the surveys as well.
“While superfunds seem better informed on currency issues, they don’t (nor does anyone) have a magic crystal ball that will accurately predict exactly where the currency will end up.
"However, there is broad agreement over the key themes which have seemed to play out in line with superfunds’ expectations.
“I’m sure that many superfunds would have quite liked that. But I think that standing back, they can pick broad themes if the currency’s high and they think it should fall lower, or low and think it should appreciate – but it is still nonetheless considered to be in a higher range,” she said.
Hampton said that what she found interesting was that many funds had actually delegated the currency management within their own fund to smaller committees.
“So trustees perhaps on a scale are looking at currency issues less frequently, perhaps only annually, but it seems increasingly we’re seeing currency decisions delegated to an investment committee or a smaller sub-committee, and that smaller sub-committee might look at currency issues on a more frequent basis,” she said.
Hampton said she believed this was consistent with this idea that knowledge about the currency was evolving, “and consistent with it being a fast-moving beast, you need to be able to make decisions quickly and efficiently”.
She said it was her analysis of the survey data that a lot of funds were delegating the responsibilities to a smaller team that was, in turn, equipped to talk about the issues on a more frequent basis.
Asked how prevalent this practice had become, she said it was definitely a theme that had come out of the surveys as well as the anecdotal comments.
“For instance, 88 per cent of trustees review currency policy at least once a year, so that’s a little bit higher than the 86 per cent we saw in 2011 – but in general, trustees are reviewing policy issues much less frequently,” she said.
“Only 37 per cent reviewed currency on a monthly basis in 2011, and this is only 5 per cent in 2013. And so, I think that trustee boards are looking at currency less frequently, but nonetheless, smaller delegations are staying on top of currency issues,” Hampton said.
She said she thought this was consistent with a question asked in the survey about who had the most influence when setting hedging decisions.
“Thirty-eight per cent said that the consultant was most important, and 42 per cent said the investment committee was most important,” she said.
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