Troy Rieck hates the word ‘unprecedented’. The managing director, Capital Markets, for Queensland Investment Corporation says that crises come along all the time. And, for the most part, Australia is, indeed, the lucky country. But what makes the crisis of the past 18 months different is not so much its severity – because it is not as severe as the 1930s or even the 1970s – but the fact that so many people have so much invested in the markets. With superannuation at negligible levels in those two previous crises and well before the big government privatisations and floats which spawned stock market investing by average workers, the slump in both listed and unlisted markets, including housing, is much more of an issue this time around.

“It’s a gut-wrenching experience,” Rieck told NAB’s FX Super Funds Conference in Melbourne on August 27. QIC, along with other big funds with large international exposures, suffered calls of hundreds of millions of dollars – the so-called cashflow risk of currency – to cover their hedges. And Rieck pointed out that with any crisis, you never quite know when it is over. Generally speaking, Australia has more room to move than our competitors, with bond yields higher than most countries, a current account deficit which is lower than in the US and an exchange rate “that’s doing its job”. “But what happens if our luck runs out?” Rieck asked. About 100 senior fund representatives, consultants and managers were present at the inaugural conference to dissect the issues surrounding foreign exchange. The major themes were: whether or not to hedge, and if so by how much, and whether an active or passive approach is better.

The only sure thing is that if super funds have any international assets, they have to form a view on currency. They cannot ignore it. However, annoyingly, there is no optimum single benchmark for them to choose. To put the importance of the currency decision into perspective, if an Australian fund invested in the MSCI World Index over 2008 was 100 per cent hedged it would have returned a positive 3.5 per cent. If it was 100 per cent unhedged, it would have returned a positive 22 per cent. That would have been the difference between making it a top-quartile fund or a bottom-quartile one. Leigh Watson, executive general manager, Asset Servicing, for NAB, said that currency was one of the most important issues facing super funds and many funds managers, which has been highlighted by the events of the past year or so.

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