The vast majority of Australia’s pension funds intend to shield their portfolios from currency swings amid fears tensions in the Middle East will rapidly escalate, according to a survey by Commonwealth Bank of Australia . Nearly 90% of funds plan to increase hedging ratios across asset classes over the next three months, with a particular focus on hedge funds, private credit and private equity, th...
The vast majority of Australia’s pension funds intend to shield their portfolios from currency swings amid fears tensions in the Middle East will rapidly escalate, according to a survey by Commonwealth Bank of Australia . Nearly 90% of funds plan to increase hedging ratios across asset classes over the next three months, with a particular focus on hedge funds, private credit and private equity, the survey showed. None intend to reduce their currency hedging, it found. The report comes as traders grapple with uncertainty surrounding the Iran conflict, with any escalation likely to trigger fresh volatility in currency markets. That poses a growing risk for Australia’s pension funds, which have more than half of their holdings invested offshore, mainly in the US, leaving them particularly exposed to swings in the Australian dollar. With tensions unlikely to ease soon, the conflict may escalate in the coming months as Trump seeks leverage to get an acceptable deal in peace negotiations, said Joseph Capurso , who co-authored the report. “There’s a high risk that it’s going to get a lot more volatile. The US, at the moment at least, has got a pretty weak hand,” Capurso, who’s head of FX, international and geoeconomics research, said by phone. “If you’re worried then you hedge and lock in some gains or protect yourself from downside.” Currency markets tend to react quickly to geopolitical shocks, with the Australian dollar often seen as a proxy for global risk appetite. During the crisis, the Aussie slumped as much as 4% by end-March before rebounding on hopes of a US-Iran truce. Asia Markets Begin Clawing Back War Losses on Easing Tensions Australia’s Currency Beats the Dollar as Haven in Iran Crisis Aussie’s One-Year Rally Versus Kiwi Is Peaking, Strategists Say While Australia’s pension funds had already begun lifting hedge ratios before the conflict, more than three-quarters of equity portfolios remained unhedged, according to government data. Funds typically expect th...