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Currency on the agenda

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Eddie Dahlberg, managing director at Gothenburg-based Skr6.5bn (e744m) Volvo pension scheme, says the fund’s currency risk approach is simple: “We hedge it all against the Swedish krone.”
He explains that, as the fund is relatively young and has all its liabilities in domestic currency, the board decided it needed to spend its first few years on a safe investment footing, although the discussion on hedging is ongoing.
However, he notes that it is not optimal to implement such a rigorous currency risk strategy to the full. “In principle, we should hedge all the exposure but it is impractical to do so. Normally we are hedged between 80 and 100%, but sometimes down to 50%.
“Because we use discretionary managers we don’t interfere in the arrangement of the portfolios. So with the investment positions changing all the time it calls for this margin of flexibility,” he says.
Dahlberg says the fund is invested at around Skr1.3bn in equities in all the major currencies listed on the MSCI index; the dollar, euro, sterling and yen, and manages the risk accordingly. The remainder is split 50–50 basis between Swedish bonds and equities.
Petri Pentti, group treasurer at Finnish airline group Finnair, with a pension fund of around Fim3bn (e505m), says the issue of currency risk is negligible at present as it is are sticking to a very euro-orientated strategy following Finland’s entry into the single currency.
“Our asset exposure outside Euroland is very limited so the currency issue is not looked at. We have never hedged because we have always been comfortable with the small positions that we have taken abroad. In terms of our overall exposure outside the Finnish market it is still very limited because we invest 80% of assets in Finland, so the euro made very little difference apart from the redefinition of ‘domestic’.
“The big change is that we are expanding our activities into Euroland and this is moving up to around 25% now, with a 60–40 split between bonds and equities.”
Erik Veedfald, chief investment officer at the Copenhagen-based Dkr16.3bn (e2.2bn) legal and economic employees pension fund (Juristernes & Økonomernes pensionskasse), comments that the fund does not really manage currency risk, but is looking into the possibility of doing so in the future.
“We only hold foreign equities so we tend to live with the currency risk, partly because it is difficult to assess what it is. We are discussing though whether we should opt for a more derivatives-orientated style of risk management and start by taking out the currency risk in the portfolio, which could be via hedging on a systematic basis.”
“Until now we have technically been overweight in Europe following the euro and we are looking to up our exposure to the US to increase diversification, but it is still to early to say how we will manage the currency,” he says. Hugh Wheelan

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