Miller asked whether a super fund could afford to have a currency hedge which was radically different to its peers.
“We find that peer considerations push organizations to have a greater hedging position than they otherwise would have,” he said.
The currency hedging decision is often the most difficult for an investment committee or consultant to put to a board because of its binary nature – you can plainly see at the end of the year whether or not your decision was correct. As a result, many funds opt for a 50:50 hedge ratio to, rightly or wrongly, avoid regret.
In terms of short-to-medium-term opportunities, Watson Wyatt believes that emerging market currencies are undervalued compared with developed market currencies.
To read the rest of this article, please subscribe to Investment & Technology magazine.
