Goldman and BofA Eyeing Australian Pensions to Hedge Investments

Wall Street banks are actively finding business opportunities that are linked to Australia’s pension funds as the nation’s retirement savings pool. It is recognized as the world’s fastest-growing and seeks to manage its substantial overseas investments more effectively.

Bank of America Corp. recently appointed industry veteran Scott Breakwell, who joined from Deutsche Bank AG, to head its foreign exchange forwards trading desk in Sydney. This move reflects the increasing demand for pension funds.

Meanwhile, Goldman Sachs Group Inc. and Citigroup Inc. are also among the global banking institutions competing to cater to the burgeoning requirements of these Australian money managers. The largest funds collectively oversee assets exceeding $650 billion outside Australia.

David Solomon (Credits: Goldman Sachs)

Given the relatively limited size of Australia’s private and public markets, pension funds in the country have significantly expanded their investments abroad, with overseas holdings accounting for nearly 50% of their portfolios.

This presents an opportunity for banks to provide services related to swaps and other derivatives, facilitating the management of capital across regions such as Europe, the US, and Asia on behalf of these funds.

David Solomon, Chairman and CEO, Goldman (Credits: Patrick T. Fallon)

“Australia is only so big,” remarked Nick Sims, co-head of investment banking for Australia and New Zealand at Goldman Sachs in Melbourne.

“As these funds gain more international exposure in their portfolios, which they will have to as they receive inflows, they will by definition have to think about FX exposure.”

Consider the top two pension fund players, AustralianSuper and Australian Retirement Trust, which collectively manage approximately $390 billion.

Bank of America Location (Credits: Jonathan Weiss)

AustralianSuper, for instance, witnessed a 53% increase in the notional amount of swaps utilized across its portfolio, totaling A$55 billion ($36 billion), during the previous financial year.

Similarly, ART reported a doubling of notional exposure in derivatives employed for FX hedging, amounting to A$70 billion over the past five years.

Josh Alba
Josh Alba
Josh Alba stands at the forefront of contemporary business journalism, his words weaving narratives that illuminate the intricate workings of the corporate world. With a keen eye for detail and a penchant for uncovering the underlying stories behind financial trends, Josh has established himself as a trusted authority in business writing. Drawing from his wealth of experience and relentless pursuit of truth, Josh delivers insights that resonate with readers across industries.
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