Advanced preparation for the euro prompted the German Siemens KAG (investment management company) in Germany to abandon hedging of euroland currencies in October last year.

However, according to Wolfgang Lotze, head of international fixed-income and equities at the company, presently managing DM24bn ($13.4bn) in assets, Siemens still retains an extremely active currency overlay system against sterling and to a lesser extent the Swiss franc.

Lotze explains that the overlay operates on both an internal and external basis, with a provisional benchmark of 50% of currency hedged and 50% open.

This can increase to a 100% deviation though either way, depending on whether an internal portfolio manager or external currency adviser believes they can make money by overweighting," he says.

The benchmark is also reviewed on a monthly basis, which Lotze says could change from 50% to 70%, according to the tactical currency decision taken by the company's investment committee.

In terms of Switzerland, Lotze comments that the company occasionally hedges its currency in times of volatility in the market, but that most of the time this is insufficient to justify any need for currency overlay.

Wolfgang Nagengast, managing director of Siemens KAG, Germany, says the company's global currency strategy operates on a similar basis.

"Outside Europe, the US is very important for us, in particular the fixed-income market. The position here against our base deutschemark currency is that we also operate both internal and external currency overlay management, with the benchmark for hedging currently close to 50%.

"Similarly, as in Europe, this is open to a rolling review on a monthly basis."

Nagengast also explains that the Japanese market is the next important in terms of investment, but that currently the company holds no yen fixed-income exposure, not he stresses for reasons of currency or interest rates, but due to the uncertainty surrounding the Japanese banking sector.

"It is difficult to maintain a substantial position at present in the Japanese market because of the unpredictability of the banking environment, which affects confidence in holding government bonds," he says.

However, Nagengast adds that this situation is being monitored on a daily basis, and that any future company changes involving investment or currency overlay are likely to come in Japan.

"From January 1999 our assets outside Europe will be around one third of our current total assets, which is approximately their amount already. Our preparation for euro implementation is in place and we see no reason to change our current currency management strategy from here on in, unless developments in Japan bolster confidence and prompt us to move back into the yen market." Hugh Wheelan"