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Are you considering currency management?
We’ve recently heard a lot of institutional investors talking about their fund’s currency exposure. From Callan’s viewpoint, this is a natural conversation given where we are in the currency cycle and the negative impact currency exposure is having on a lot of equity portfolios. Further, this particular cycle is hitting at a time when many institutional portfolios have more non-U.S. dollar exposure than ever, making the event particularly painful. However painful, we feel it’s important to remind investors to consider the context of the issue, and to rely upon a documented currency policy to guide decisions in times like the present.
In the following 10 charts we offer such context for this discussion. These graphical representations of relevant data over time help to frame the issues equity investors face around currency, including asset allocation, currency returns, risks, and correlations. Callan recommends a measured approach to managing currency, including creating a documented currency policy for the investment fund to ensure short-term decisions made during painful times are in line with long-term strategic goals of the plan.