MTAA Super is being investigated by the Australian Prudential Regulation Authority (APRA) for removing its currency hedges in the middle of the global financial crisis, reports suggest.
The fund lost A$500m over the three years to June 2010 as a result of executive decisions to remove the hedges in the middle of the 2008, reports in the Australian press claim.
They claim APRA is investigating MTAA Super to determine why the fund removed the currency hedges at a time when the Australian dollar plunged about 40% in value from near parity with the US dollar to around US$0.60 in late 2008.
In a public statement following the claims, MTAA Super said it had "conducted normal and regular discussions with its regulators since the issue of its licence by APRA in 2006. This includes participating in regular prudential reviews."
The head of Motor Traders Association of NSW, James McCall, said he has unanswered questions about the role MTAA Super CEO Michael Delaney played in the decision to remove the hedges.
"We have questions about the role of the CEO in the currency debacle, and if that decision was made on his recommendation, I believe he should step aside, McCall told Global Pensions. "We have promoted the fund over many years to our members and to our members' employees. We have a responsibility to our members and to our members' employees. The performance of the fund over the past few years is of concern to us."
McCall said he had been questioning MTAA Super on the decision to remove hedging for years.
"The decision on hedging, of course is of concern to us," he added. "That's money that's lost and can't be recovered. That seems as if the decision was a bad decision. We've been raising questions for some time now, a couple of years. We've expressed our concerns on the fund's performance and on the management of the fund. There are a few questions we'd like answered."
MTAA Super said in a statement: "Currency risk is a risk faced by all superannuation funds that have offshore investments and must be considered in two perspectives; the impact on the performance of the asset and the impact on the profit and loss statement as contracts mature.
That is when the Australian dollar falls the impact will be positive for the local currency value of the asset but will result in the payment of currency contracts as they mature.
"Similarly, when the Australian dollar is high the impact will be negative for the local currency value of the asset but will result in positive realisation of hedge contracts. The Trustee reviews it hedging strategy on a constant basis in order to manage currency risk."
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