GLOBAL - The California Public Employees' Retirement System is to start an internal active currency management programme, according to a presentation at the latest IPe-Symposium.

“We’ve just received permission for an internal active programme,” said the fund’s currency overlay and international fixed income portfolio manager Eric Busay.

Speaking on the online conference, he explained the giant US pension fund’s developing approach to currencies. After initially looking at it as a risk reducer it is now looking increasingly at is an alpha (or market outperformance) generator.

It will look to separate out the alpha and diversifying aspects of the asset class. “What we’re trying to do in the future is make that more transparent. So managers can go both long and short the currencies.”

The $210bn (€163.8bn) CalPERS has had a currency programme since 1992 and Busay told the symposium that it had led to much less volatile returns – 41 basis points since the start of the programme.

He concluded that currency can be hedged and it can dampen volatility.

And he said there’s “evidence that hedge costs vary with the likely largest component being Interest Rate Parity”. And there was also evidence that skilled currency mangers can indeed “extract value”.

He pointed out that currency is relatively uncorrelated with other asset classes from an alpha perspective, which is partly to do with the fact that currencies are a pair. That’s to say you can go long in either one.

He also noted that there’s currently no uniform way of looking at currency returns in the market.

Earlier CalPERS selected Legato Capital Management and Strategic Investment Group as joint venture partners in its second manager development programme for emerging money management firms.