by Paul McBeth
Some 42% of New Zealand respondents to the National Australia Bank and BNZ Superannuation FX Survey changed currency benchmarks, compared to 61% of Australian funds. Still, 85% of kiwi funds ranked currency as an important or very important issue.
"In New Zealand - where there is no or limited legislation savings - funds have more of a retail commercial drive when it comes to currency settings, as opposed to a distinct hedging strategy," said Greg Ball, markets director at Bank of New Zealand. "The New Zealand dollar is more illiquid than the Australian dollar, so it is harder to manage the currency to generate a return."
New Zealand fund managers historically have higher hedge ratios due to the volatility of the kiwi dollar, which climbed to 82 US cents in March last year before plummeting to 49 cents in March this year.
Ball said New Zealand fund managers maintained a more consistent currency strategy than their trans-Tasman counterparts, but placed a different emphasis on what would cause a change in benchmark. Some 46% of New Zealand managers cited the cash impact of hedging as a reason to change the benchmark compared to 53% of Australian respondents.
Managing counterparty risk was a key theme for fund managers surveyed, with 85% reviewing the amount of credit risk they faced, and 31% investigating, or putting in place, the use of credit support arrangements.
The average hedge benchmark among New Zealand superannuation funds for international equities fell to 49% from 53% in 2007, while international fixed income dropped to 85% from 88%. Kiwi super funds dropped their average benchmark in international property to 75% from 84%, and kept private equity at 33%. The hedge funds benchmark fell to 55% from 67%, and infrastructure was cut to 83% from 100%. Emerging markets were popular, with the average benchmark lifted to 46% from 42%.
Paul is a staff writer for Good Returns based in Wellington.
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