Aussie pen­sion fund drops pas­sive strate­gies

The Sun (Malaysia) - - SUNBIZ -

SYDNEY: Aus­tralian pen­sion fund HESTA, which man­ages A$36 bil­lion (RM120 bil­lion) of as­sets, is switch­ing out of pas­sive strate­gies in fixed in­come, a top ex­ec­u­tive said yes­ter­day, re­flect­ing un­cer­tain­ties about the in­ter­est rate out­look.

Pas­sive in­vest­ing typ­i­cally tracks an in­dex or port­fo­lio as op­posed to ac­tive man­age­ment that tries to beat the mar­ket by buy­ing and sell­ing se­cu­ri­ties.

HESTA chief in­vest­ment of­fi­cer Robert Fowler said the move was to off­set the du­ra­tion risk, or sen­si­tiv­ity to in­ter­est rate changes, em­bed­ded in the Bar­clays Global Ag­gre­gate in­dex, a stan­dard fixed in­ter­est pas­sive bench­mark.

“We are re­plac­ing it with float­ing rate in­vest­ments that are ac­tively man­aged,” he said.

Fixed rate in­dices typ­i­cally have du­ra­tions ex­ceed­ing three years, which makes them more vul­ner­a­ble to rises in short-term rates. Float­ing rate notes typ­i­cally have a 90-day ma­tu­rity and thus of­fer more pro­tec­tion should in­ter­est rates rise.

Fowler, who says he would be hard­pressed to find value any­where amid the cur­rent global yield hunt, has also in­creased ex­po­sure to other ac­tively man­aged debt in­vest­ments.

On the home front, Fowler is not con­cerned about the risk of Aus­tralia los­ing its top notch credit rat­ing.

Stan­dard and Poor’s in July cut the out­look for the coun­try’s credit rat­ing to neg­a­tive from sta­ble, threat­en­ing a down­grade of its AAA sta­tus.

Aus­tralia is one of only a dozen coun­tries in the world rated AAA by S&P and Moody’s.

“If any­thing, a triple A rat­ing is a curse be­cause it keeps the Aus­tralian dol­lar higher than it should,” he said, see­ing a down­grade hav­ing lit­tle im­pact on HESTA’s port­fo­lio.

The Aus­tralian dol­lar has gained 2.6% this year to trade at US$0.7477.

Aus­tralia’s AU$2.1 tril­lion pool of tax­ad­van­taged re­tire­ment sav­ings, know lo­cally as “su­per­an­nu­a­tion” or “su­per” funds is among the world’s largest af­ter the US, UK, Ja­pan and Canada.

Su­per funds’ hold­ings greatly ex­ceed Aus­tralia’s AU$1.6 tril­lion gross do­mes­tic prod­uct and are set to reach nearly AU$10 tril­lion by 2035, ac­cord­ing to Deloitte. – Reuters

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