SWITZERLAND - Swiss pension funds do not believe in hedging their portfolio against currency risk, and are now especially critical of currency overlay, as evidence suggests the practice has not helped scheme finances.
According to the latest survey by Swiss consultancy Lusenti, Pensionskassen which have tried currency overlay in their portfolios have given it the worst rating among all currency hedging measures.
The 155 institutions taking part in the semi-annual online survey - with combined assets of CHF239bn (€147bn) - marked the usefulness of currency overlay with -2 on a scale ranging from +5 to -5.
However, other measures to actively manage the currency risk in a portfolio were not very popular either.
In fact, the consulancy stated complete currency hedging "does not have many followers" with an average score of -1.7.
In absolute figures, only 10 participants said they used complete currency hedging for their exposures to US dollar and only four did the same for euro-denominated assets.
Overall, 40% of answers stated no currency hedging measure at all was taken against US dollar risk for Euro related risk it was even 48%.
At least 59% also said they did not hedge their exposure to other currencies.
Lusenti noted Swiss funds marked the results of active currency management similarly negative to that of tactical asset allocation measures taken in the first quarter. (See earlier IPE story: TAA in Q1 disappoints Swiss funds)
"This does not mean tactical asset allocation does not make sense," the consultancy concluded. "However, the results suggest tactical measures in their current form have not lead to satisfactory results."
The report also found funds are still taking tactical decisions in their asset allocation despite not being satisfied with the results.
"It might be that doing something gives them the feeling of controlling the situation," Lusenti said.