The survey results are of interest to economists and traders alike as the pool of foreign pension assets is becoming a major driver of current accounts and capital, and therefore long-term prospects for the Australian dollar.

Mr Bradford said currency exposure was the second biggest risk behind equity allocation and noted that a trend since the last survey was for super funds to view currency more as an allocation decision. of assets as a hedging or risk management judgment.

A decline in the Australian dollar against the US dollar since it traded above parity in 2013 contributed to the performance of super funds which did not fully hedge their exposure to foreign currencies. But the survey indicated that a fully hedged fund would have added 6 percent to member returns over the past year.

The desired average level of overseas exposure among the super funds studied is 21.5 percent.

Australian dollar fair valued, but cyclical

More than half of the super funds changed their view of the Australian dollar during the year. Some had moved from a position that the Australian dollar had been overvalued to seeing it as closer to its fair value, so they were more willing to hedge against a rise.

On the other hand, some funds have reduced their hedges and increased their exposure to currencies due to the insurance qualities of exposure to foreign currencies, as the Australian dollar, which is very cyclical, tends to fall in the event of risk aversion.

“This was primarily intended to help with diversification / hedging against their risky asset positions, given the inability of ultra-low yield bonds to continue to meet this requirement as had historically been the case,” he said. declared the investigation.

However, the survey confirmed that super funds will continue to invest more marginal dollars in overseas markets, pushing their overall overseas exposures towards, and ultimately behind, 50%.

Official data released in September showed record super fund flows to offshore stocks, confirming an accelerating trend.

The super funds said the main reason they were transferring more money overseas was because there were more opportunities overseas, limited opportunities in the Australian market, the lure relative pricing of international assets and the desire to track asset allocations of other super funds.

The survey showed that super funds covered around a third of their international equity exposures, up from 29% in 2019.

While super funds tended to leave two-thirds of foreign equity exposures unhedged, unlisted investments such as infrastructure and private equity tended to be almost fully hedged.

“If you are investing a large amount of money in an infrastructure project, you want to know exactly what it is going to get you in Australian dollars,” Bradford said.

The survey also found that 57% of super funds had increased their exposure to unlisted assets over the past two years. This is due to better relative valuations against listed assets, diversification and the need to keep pace with returns expected from peers.

“If you want to invest money in infrastructure, in Australia it is expensive from a return standpoint,” Bradford said.

“I am sure that with the recent [infrastructure package] announcement in the United States, if you want to invest in infrastructure, you are going to have good opportunities.