Irish pension schemes with holdings in the US stock market have enjoyed an exceptional return of up to 62 per cent since the euro was first launched, thanks to a 22 per cent rise in the US stock market plus the strengthening of the dollar against the euro.
These figures were presented at a seminar last month entitled Currency Overlay and Currency Fund Management, organised by the Society of Investment Analysts in Ireland and the Society of Actuaries in Ireland.
Delegates heard from professionals in the field of currency risk management and speakers included Matthew Annenberg of SSB Citibank, Mark Caslin of Alder Capital, Adrian Lee of Lee Currency Overlay and Bill Musyken, chairman of Mercer’s Global Manger Research Committee.
Bill Musyken, chairman of Mercer’s global manager exploded many of the myths commonly held about currency hedging in his paper and said that the key to understanding currency exposure management was to separate the long term strategy issues from strategy implementation.
Mark Caslin of Alder Capital in his presentation said that it was not enough to be able to forecast the direction of currency moves, the magnitude of these moves was needed too for currency overlay strategies.
He pointed out that if global growth slows and equity markets fall, companies may be expected to stump up the extra cash for their pension funds just when they are facing falling revenues themselves. However he said it was possible to target the same return with lower risk by investing in a currency fund and avoid over exposure in equity markets. |
