Aussie pension fund drops passive strategies

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