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“When foreign exchange is viewed as a separate unconstrained source of total returns, it should take a share in global portfolios, possibly comparable to those of bonds and equities” Bilal Hafeez, Deutsche Bank |
Deutsche Bank believes forex could help solve the global pension crisis.
In a research note entitled Currencies: pensions saviour? Hafeez says that although FX has often been viewed as an alternative asset class it should now be considered as comparable to bonds and equities. FX “has exhibited long-term systematic returns or ‘beta’, which are comparable, if not better, than both bonds and equities since 1980. It also has greater liquidity than both,” Hafeez writes. Hafeez also highlights an obvious problem: the investment horizon of pension funds is by nature long term but their performance is increasingly being monitored in the short term. “This implies,” he says, “that there is an increasing sensitivity to quarterly or annual fluctuations of returns. Therefore, it is no longer appropriate to talk only of how to increase future returns, it is also necessary to consider the likely fluctuations of these returns over shorter time horizons.”