“The surging dollar looks to have wiped out about $1 trillion in U.S. pension fund assets over a recent nine-month period, eroding much of the gains those funds earned investing in overseas stock markets. While there has been increased demand for hedging exposure in foreign markets, many U.S. pension funds remain vulnerable to foreign exchange translation losses, currency managers said,” Gertrude Chavez-Dreyfussn from Reuters reports.
Courtesy of Wikipedia.
U.S. pension funds, with total AUM of about $22 trillion, represent one of the largest investable pools of assets in global financial markets.
“It has been a rough fiscal year. One of our funds could have used a currency hedging program because it couldn’t afford the strong move in the dollar,” said David Peden, CIO at Kentucky Retirement Systems.
According to Reuters:
“Estimates from State Street Global Advisers showed U.S. pension funds may have lost six percent, or $1.3 trillion of their total holdings from July 2014 to end-March this year due to the strong dollar. The figure represents one of the first estimates of what the sudden dollar strength meant to many pension funds over the past year.“
The U.S. dollar rallied more than 20 percent against a currency basket from July last year through the first quarter of 2015 due to expectations of higher U.S. interest rates.
Courtesy of StockCharts.
“A typical pension fund invests about 30 percent of its portfolio in international markets, putting total overseas pension investments at about $6.6 trillion, currency managers said. State Street’s Crownover said U.S. pension funds are hedged at an average of just 15 percent, leaving 85 percent of that $6.6 trillion exposed to the dollar’s strength,” Reuters notes.
For now it looks like as if the Dollar strength is not fading. “This is probably the third big structural bull market in the dollar, which could last years,” said Mark Astley, CEO of Millennium Global in London.
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