UK pension funds' demand for foreign exchange management has risen sharply over the past year, as trustees and managers seek to limit risk and improve returns, reports RiskNews’ sister publication, FX Week .The low growth offered by equities recently and the sharp fall seen by the dollar this year has led pension funds to focus on how they manage their currency exposure. Bill Muysken, global head of research at Mercer Investment Consulting in London, said for the year to date Mercer has seen 20 clients asking for advice on currency compared with just four for the whole of 2003.
Anita Higgins, director of institutional business at BGI, said the group's currency funds now run £27 billion of assets compared with £5.8 billion in 1999. She reported significant interest in a currency-hedging fund BGI launched last year. Aimed at small and medium-sized UK pension funds, it offers hedging against the average UK pension fund's overseas exposure.
The UK's Record Currency Management has seen a big increase in demand for its services that are tailored to pension funds. Chief executive Neil Record said funds under management doubled in the year to July to $16 billion. He noted the recent devaluation of the dollar has ignited an interest in controlling currency risk. He said the dollar’s fall to $1.90 to the pound hindered equity managers’ efforts at effective stock selection, instigating demand for stripping this risk out.
Muysken said the two main factors driving demand for currency management are a reduction or risk linked to holding equities listed in different world currencies, and a desire to add value by delivering returns through active currency management. While a greater proportion of US pension funds traditionally used some form of currency overlay, interest there has dipped as it has grown in the UK, he added.
More on Structured Products
Regulator set to focus on backtesting and replicability of index products
The watchdog’s priorities for 2015 include drawing up new powers of product intervention
Contineo initiative set to transform structured product sector
Trade body says issuers will face unnecessary legal and compliance bills under Esma plans
Sign up for Risk.net email alerts
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
Nominated for two technology awards
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.