WINDSOR, England - Although the dollar may be rebounding, currency management isn't sharing the limelight.
A recent survey of about 50 larger U.S. pension funds by currency manager Record Treasury Management, Windsor, England, showed 40% of respondents regard the currency component of their investments as unimportant in the long term.
In contrast, another 24% view currency as a diversification tool, while 18% consider it to be an unacceptable risk that should be controlled.
Record Treasury's survey covered U.S. funds with assets of $3 billion or more; most of the funds invest outside of the United States.
Among its other findings, the survey revealed 62% of respondents would require a level of international investment greater than 15% of assets before they would implement a currency overlay program. Nonetheless, 69% of respondents believe currency overlay is best managed by specialist currency managers; conversely, 26% believe their existing international equities managers can handle such a program, while 5% prefer to manage currencies in-house.
Besides foreign exchange-related issues, the survey also explored areas, including general international investment practices and preferences. The survey showed, for example, that of the 50-odd respondents, the "norm" is to have 10% to 20% invested overseas; none of the respondents in this survey invested more than 30% of assets outside the United States.
In terms of investment locale, Record found the Asia-Pacific region and South America are expected to be the hot areas for investments in the next decade, while much of the developed world looks less appealing. "The more mature markets of North America and Western Europe fail to excite plan sponsors, and Eastern Europe fares even worse in their expectations," according to Record's report.
Record Treasury Management undertook its survey as a fact-finding mission. "We already do a lot of surveying in Europe, and we find the data helpful for ourselves and for clients and consultants, for whom we make it available," said Leslie Hill, director of Record Treasury Management.
The firm decided to obtain the same information on the U.S. market.
"The survey about currency risk and what to do about it gives a picture of where the problems are and where we most likely could be helpful. And it helps respondents to know what other pension funds' attitudes are in this area," Ms. Hill explained.
Of course, many funds' nonchalant attitudes about currency management must disappoint currency managers. But Ms. Hill views the situation in two ways: "the weak dollar has been with us for so long that investors have yet to feel the discomfort from a rising dollar." Also, more fund sponsors are interested in becoming educated about currency management - to find out "what to do when" about currency exposure, she said.
Indeed, the Record Treasury official expects interest in overlay to increase faster in the United States than in Europe.
Although the currency overlay concept has been around longer in Europe, interest there remains sporadic, she said. That's partly because of the differences in investment conditions and rules in Europe, she explains. Markets in which there has been some interest by funds in currency overlay are Britain, Holland, Scandinavia and, to a lesser extent, Switzerland.