GLOBAL – Three European pension fund managers have discussed their approaches to currency on an online symposium organised by IPE.
The panellists were Jean-Pierre Steiner from Nestle, Karri Makitalo from Finland’s KEVA and Michel Thomas from Italy’s Pensplan.
Steiner explained: “Theory says you should hedge 100% but for practical reasons that is very hard, only 15% of institutional investors worldwide have 100% hedge benchmarks.
He pointed out that the company’s largest fund has Swiss francs as its base currency, although a large part of its liabilities are in euros.
But the CHF-EUR volatility is very low “so hence we tend to have a slightly different approach for euro risk compared to the other currencies”.
“In fact it’s so low we tend to ignore and treat the euro as the base currency for the Swiss fund.
“All in all in practice we have still have a net currency exposure of between 70% and 85% hedged, unhedged is 15%-30%.”
KEVA’s Makitalo said the fund’s currency exposure is in two portions – passive for equities and alternatives and active for fixed income.
“On the passive side it’s pretty much underlying assets,” he said.
But on the active side the benchmark was fully hedged. It’s hiring several external managers to add alpha. may be worth following_up?
He said currency definitely had some benefits. “All in all, whether a pension fund uses a passive or active mandate – or internal or external - a pension fund should get added value.”
Pensplan’s Thomas described his fund’s new overlay programme with Rothschild.
“We will never go to 100% hedging - that would also be dangerous.” Between 0%-30% of the dollar portfolio is hedged.
“One-year experience – it’s something new in Italy – so far it’s working.”
On market timing Thomas said: “We are active managers and we believe in timing. Without becoming too arrogant its possible to do a little timing… it’s a very quantitative operation.
“You really have to watch the markets very very carefully and use consultants and technical analysis. Our results show it is helping us.”
On this point Makitalo suggested using the mathematics, not market timing, to beat the markets. “To my mind the positive returns are due to superior risk management not market timing.”