A major theme was predicted in currency management for this year – the continuation of currency volatility and how pension funds should try to shield themselves from it. But the fundamental change has been currency volatility driven by government debt bubbles instead of uncertainly in the markets.
At the 2010 Global Pensions Currency Management Forum last week, presenters set out to help investors discover how to deal with volatility as this is truly a unique situation; markets are not reacting to the possibility of a default by the major debtors. Instead, they are reacting to the monetary tightening on the horizon.
Sessions were held at the Four Seasons Hotel in Yorkville and included information on choosing the right asset manager based on their ability to generate excess returns; how to extract beta returns from the FX market to enhance work; how to identify and better track your foreign exchange costs; information on the risks and exactly how to manage them for your currency alpha portfolio and on learning how managers are meeting their investor’s clients’ demands to increase international allocation.
The morning began with a nuts and bolts presentation from Marcus Turner, Senior Consultant with Towers Watson. Turner commented on how currency markets are inherently inefficient. When asked if he recommended active currency management, his answer was simple.
“It certainly depends on the plan,” Turner stated. “Most Canadian plans don’t necessarily have the means to hire an active manager due to their size. Therefore it’s key to have a very diverse manager selection and to leave the tactical decisions [on currency allocation] to the manager and the strategic to the plan.”
For more information on the event, please visit Global Pensions’ website. You can also view an interview with Michael Lewis, Principal with Mercer, who presented on choosing and evaluating your currency manager.