US -Analysts have urged the pensions industry to view currency management in a broad context and avoid any tendency to categorise it.
It comes after Cynthia Steer, managing director and chief research strategist at Rogerscasey, said many consultants were either focused on international equities when dealing with currency or whether currency is a “zero sum game”.
Steer said: “The reality is that investment consultants seem to want to fit currency management into neat boxes. We really need to focus on who are the good managers and who will survive and take that to the boards rather than a style breakdown, It has to be in a broad context , both liquid and illiquid asset classes.”
She added that it was important for boards to understand how much exposure they have in an asset class and the duration of each bucket.
Steer said: “Finally, it is imperative that boards focus on lowering the high costs of custodial foreign exchange as these will impair returns over the next decade.”
Responding to Steer’s argument, David Babbitt, vice president for global markers at The Bank of New York, said if analysts were just looking at international equities that was a much “smaller piece of the pie”. He said: “There are various other buckets you could be looking at.”
Erik Gronvold, vice president of Aon Consulting in Jacksonville, said: “As pension funds increasingly look to differentiate actual skill in security selection from systematic risk factors, currencies will play a broader and more prominent role in pension management. The level of price competition and product innovation in today's investment industry allows pension funds to better isolate, hedge or otherwise manage exposure to many types of systematic risk factors, including currency.”
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