Australian Pensions See Foreign Currencies as Cushion From Shock

(Bloomberg) -- Australia’s pension funds are set to boost foreign currency holdings as an alternative to fixed-interest assets to shore up their portfolios against market shocks.

That’s the view of Mark Delaney, the Chief Investment Officer of AustralianSuper Pty, who sees this happening over the next five years amid persistently low yields on government bonds.

Given the Australian dollar’s link to demand for commodities and global growth, holding overseas currencies can be a good hedge against market volatility and downturns, he told the Bloomberg Invest Global summit. A Bloomberg gauge measuring strength in Australia’s dollar against its Group-of-10 peers tends to support this view.

“A lot of plans will move to hold more foreign currency and a little bit less fixed interest,” said Delaney, who oversees A$233 billion ($170 billion). “If you like, diversify the diversifiers.”

The nation’s pension funds, which manage A$3.3 trillion, target minimum returns of 3%-3.5% above inflation while protecting the retirement nest eggs of their members -- something that has become increasingly challenging in the era of ultra-low interest rates. 

Delaney didn’t indicate which currencies might come into favor with Australian pension funds.

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