Second-largest Australian pension fund pares U.S. dollar exposure via hedging

Australian Retirement Trust, the country’s second-largest pension fund, has moved to reduce its exposure to the U.S. dollar by increasing currency hedging on its U.S. asset holdings as investors reposition for a weaker greenback. The change is tactical rather than a retreat from U.S. equities: ART, which manages about A$353 billion, is keeping roughly A$53 billion of U.S. equity allocations intact while shifting the fund’s currency strategy to protect member returns.

ART’s adjustment reflects a view that U.S. monetary policy may ease next year while central banks in other advanced economies, including Australia and Japan, could hold or lift rates. Financial markets are pricing in roughly 50 basis points of U.S. rate cuts in 2026, a dynamic likely to put downward pressure on the dollar relative to currencies whose rates remain firmer. In response, ART plans to hedge a greater share of its U.S. assets while leaving exposures to some other markets, notably Japanese equities, more fully unhedged. The fund described the move as an effort to rebalance global currency exposure to better manage foreign-exchange risk amid diverging policy paths and ongoing market volatility.

The policy is significant because Australian managers have historically left substantial portions of U.S. investments unhedged. The dollar’s traditional role as a safe haven tended to boost returns for unhedged investors during periods of market stress. That buffer appears less reliable if U.S. policy makers tolerate or favour a weaker dollar to support competitiveness, prompting pension funds to reconsider the balance between currency risk and equity exposure.

ART’s action comes amid a broader industry shift. Data and research show Australian superannuation funds have been scaling back foreign-currency risk, buying Australian dollars to shield portfolios from potential dollar weakness. With the Australian superannuation system estimated at roughly A$4.2–4.5 trillion, collective moves to increase hedging have meaningful market consequences: if replicated widely, sustained buying of Australian dollars to hedge foreign holdings could lift the currency and complicate returns for members invested offshore.

Regional allocation patterns underpin the strategic choices. Research from MandalaPartners indicates pension funds held about A$264 billion in the UK and EU region as of mid-2025, with roughly A$83 billion in the UK and A$181 billion in the EU. That bloc is the second-largest international destination after the U.S. and is expected to expand materially over the coming decade, with projections pointing toward more than A$660 billion in UK/EU allocations as funds diversify away from concentrated U.S. exposure.

Regulatory statistics from the Reserve Bank of Australia and the Australian Bureau of Statistics provide the monitoring framework that will track how hedging practices evolve. Central bank and industry data have already documented a rising offshore allocation among Australian retirement savings, with foreign assets approaching half of many portfolios and projected growth that could see the system reach about A$8.3 trillion by 2035.

For now, ART’s move is a targeted risk-management step rooted in monetary-policy outlooks and the desire to stabilise member outcomes. By retaining U.S. equity positions while adjusting currency protection, the fund signals a preference for managing exchange-rate volatility without sacrificing long-term equity exposure. The broader test will be whether other large managers follow suit, and how collective hedging flows influence the Australian dollar and international returns for superannuation members.