Pension schemes are being urged to rethink currency hedging strategies after the market turmoil that has followed President Trump’s tariff policy.
Investment expects have pointed out that many schemes have held US assets without hedging, due to the dollar historically holding its value at times of market volatility. But they warn that such strategies may not be as effective going forward with Trump’s tariff policy hitting both US markets and the value of the dollar.
Next week Corporate Adviser publishes its annual master trust report which contains information on which leading workplace pension schemes current current deploy hedging strategies.
Isio chief investment officer Barry Jones outlined the current challenge facing pension schemes and warned that many may need to rethink FX strategies. “ “European pension funds holding US assets face an unprecedented challenge. The dollar has been excellent long-term for capital preservation and as a safe haven, due to the dollar moving inversely to risk assets in times of market weakness. Unhedged exposure to the US was something that overseas investors could rely on as a safety blanket but now, for the first time since the 1940s, that may no longer the case.”
He adds: “Trump’s tariff turmoil has tanked US markets and the dollar at the same time. European pension schemes without appropriate hedging strategies in place are in trouble. Earlier this year, in the immediate aftermath of ‘liberation day’, pension schemes were preoccupied with making sense of and navigating huge market moves. Now the initial storm has passed, they are quickly turning their attention to longer-term strategic currency positioning.
“Pension schemes in vulnerable positions – with significant unhedged US exposure – could already have missed the boat. Their challenge may be one of damage limitation. For other schemes with more salvageable positions, the time to act is now to reassess exposure to the dollar. Dollar devaluation appears to be an end game goal for the Trump administration and we are seeing a range of different schemes reevaluate their currency hedging strategies as a result.”
